Exercise 3-2A (Static) Per-unit contribution margin approach LO 3-1

Question

Question

Chang Corporation sells products for $120 each that have variable costs of $80 per unit. Chang's annual fixed cost is $720.000.

Required

Use the per-unit contribution margin approach to determine the break-even point in units and dollars.

business accounting

Answer 1

✔ Recommended Answer

Answer #1

Solution)

Selling price per unit = $120

Variable cost per unit = $80

Therefore, contribution per unit = Selling price per unit - Variable cost per unit = $120 - $80 = $40

Profit volume ratio (P/V ratio) = Contribution per unit / Selling price per unit = $40 / $120 = 0.3333 = 33.33%

Annual fixed cost = $720,000

Therefore, break-even point in units = Annual fixed cost / Contribution per unit = $720,000 / $40 per unit = 18,000 units

Again, break-even point in $ = Annual fixed cost / Profit volume ratio = $720,000 / 33.33% = $2,160,000

Answer 2

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