Question

APPLY THE CONCEPTS: Calculate the break-even point in sales dollars for Epstein Hardware

Further analysis of Epstein Hardware’s fixed costs revealed that the company actually faces annual fixed overhead costs of $9,800 and annual fixed selling and administrative costs of $4,200. Variable cost estimates are correct: direct materials cost, $4.00 per unit; direct labor costs, $5.00 per unit; and variable overhead costs, $1.00 per unit. At this time, the selling price of $20 will not change. Complete the following formulas for the revised fixed costs. Enter the ratio as a percentage.

Contribution Margin per Unit

=

$

–

$

=

$

Contribution Margin Ratio	=	$	=	%
		$

Now complete the formulas for (1) the break-even point in sales dollars and (2) the units sold at the break-even point. To calculate this, divide the break-even point in sales dollars by the unit selling price.

Break-Even Point in Sales Dollars	=	$	=	$
		%

Units Sold at Break-Even Point

=

units

Assume that the number of units that Epstein sold exceeded the break-even point by one (1).

How much would operating income be?
$

What would operating income be if the units sold exceeded the break-even p

Answer 1

Sales price per unit	$20.00
Variable cost per unit	$10.00
Contribution margin per unit	$10.00
Contribution margin ratio	50.00%
Fixed cost	$14,000.00
Breakeven point($14,000/$10.00)	1,400	units
Break even point in dollars($14,000/50.00%)	$28,000.00
No. of units sold	1401	units
Contribution margin	$14,010.00
Less:Fixed cost	$14,000.00
Operating Income	$10.00