Question

# Break-Even and Target Profit Analysis

Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for \$60 per unit and has a CM ratio of 40%. The company's fixedexpenses are \$360,000 per year. The company plans to sell 17,000 bookbags this year.

1. What are the variable expenses per unit?
2. Using the equation method:
a. What is the break-even point in units and in sales dollars?
b. What sales level in units and in sales dollars is required to earn an annual profit of \$90,000?
c. Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by \$3 per unit. What is the company's newbreak-even point in units and in sales dollars?
3. Repeat (2) above using the formula method.

1.) \$36
CM ratio = 40% so 40% * 60 = \$24 profit, or \$36 variable cost

2.)
a.) 360,000 = \$24x
x= 15,000 units
b.) 15,000 * 60 = \$900,000 Sales
c.)
360,000 = \$27x
x = 13,333.33 units
x * 60 = \$800,000 Sales
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