Question

46-49. Wheaten Enterprises, Ine. has fixed operating costs of $150,000, the selling price per unit of its product is $150, and its variable cost per unit for this product is S110. a. Calculate the firm's operating breakeven point in units b. What is the firm's breakeven point in sales dollars?

Answer 1

Solution :

a. The operating breakeven point is calculated as follows :

= ( Total fixed operating costs / Contribution per unit )

= Total fixed operating costs / ( Selling price per unit - Variable cost per unit )

As per the data given in the question

Total fixed operating costs = $ 150,000

Selling price per unit = $ 150

Variable cost per unit = $ 110

Thus the firm's break even point in units = $ 150,000 / ( $ 150 - $ 110 )

                                                                          = $ 150,000 / $ 40

                                                                          = 3,750 units

b. Firm's breakeven point in sales dollars :

The break even point of the firm in sales dollars is calculated as follows:

Breakeven point in sales = Total operating fixed expenses / contribution margin ratio

Contribution margin ratio = [ ( Selling price per unit - Variable cost per unit ) / Selling price per unit ] *100

Thus Contribution margin ratio for the firm = [ ( $ 150 - $ 110 ) / $ 150 ] * 100

                                                                             = ( $40 / $ 150 ) * 100 = 26.66666 %

Thus break even point in sales dollars = $ 150000 / 26.66666 % = $ 150000 / 0.2666666

                                                                        = $ 562,500

Thus the firm's operating break even point in units = 3750 units

The Firm's breakeven point in sales dollars = $ 562,500