Question

Paney Company makes calendars, Information on cost per unit is as follows: $1.50 1.20 Direct materials Direct labor Variable overhead Variable marketing expense 0.90 0.40 Fixed marketing expense totaled $13,000 and fixed administrative expense totaled $35,000. The price per calendar is $10. What is the break-even point in sales dollars?

Answer 1

Selling price per unit = $10

Variable cost per unit = Direct materials + Direct labor + Variable overhead + Variable marketing expense

= 1.50 + 1.20 + 0.90 + 0.40

= $4

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 10 - 4

= $6

Total Fixed costs = Fixed marketing expense + Fixed administrative expense

= 13,000 + 35,000

= $48,000

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 6/10

= 60%

Break even sales dollars = Total Fixed cost/Contribution margin ratio

= 48,000/60%

= $80,000

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