The following information pertains to the A company’s 2014 operations: Selling Price per Unit $50 Variable...
The following information pertains to the A company’s 2014 operations:
| Selling Price per Unit | $50 |
| Variable Costs per Unit | $10 |
| Total Fixed Costs | $55,000 |
A. What is the A company’s break-even point in units? in Dollars?
B. What are the sales dollars required to obtain a pretax profit of $17,000?
C. If management decided to increase total fixed costs to $75,000, what would the new break-even point be, in both units and dollars? What would the sales dollars be to obtain the same $17,000 in profit?
Homework Answers
A.
Contribution margin per unit = Selling price per unit - Variable costs per unit
= $50 - $10
= $40
Contribution margin ratio = Contribution margin per unit / Selling price per unit
= $40 / $50
= 0.8
Break-even point in units = Fixed costs / Contribution margin per unit
= $55,000 / $40
= 1,375 units
Break-even point in dollars = Fixed costs / Contribution margin ratio
= $55,000 / 0.8
= $68,750
B.
Sales dollars required = (Fixed costs + Desired profit) / Contribution margin ratio
= ($55,000 + $17,000) / 0.8
= $90,000
C.
Break-even point in units = Fixed costs / Contribution margin per unit
= $75,000 / $40
= 1,875 units
Break-even point in dollars = Fixed costs / Contribution margin ratio
= $75,000 / 0.8
= $93,750
Sales dollars required = (Fixed costs + Desired profit) / Contribution margin ratio
= ($75,000 + $17,000) / 0.8
= $115,000
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