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Financial & Managerial Accounting
Found in: Page 833
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

SBD Phone Company sells its waterproof phone case for $90 per unit. Fixed costs total $162,000, and variable costs are $36 per unit. Determine the (1) contribution margin per unit and (2) break-even point in units.

Answer

Contribution margin per unit: $54.

Break-even point: 3,000 units.

See the step by step solution

Step by Step Solution

Step-By-Step SolutionStep 1: Definition of Break-Even Point

The level or point at which the business entity is in the situation, whether it neither generated profit nor loss, and we can also say a level where the total cost is equal to the total revenue, is known as the break-even point.

Step 2: Contribution margin per unit

Particular

Amount

Sales price per unit

$90

Less: Variable cost per unit

(36)

Contribution margin per unit

$54

Step 3: Break-even point

Most popular questions for Business-studies Textbooks

Rivera Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2018’s activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $150,000. The maximum output capacity of the company is 40,000 units per year.

RIVERA COMPANY

Contribution Margin Income Statement

For Year Ended December 31, 2017

Sales

$750,000

Variable costs

600,000

Contribution margin

150,000

Fixed cost

200,000

Net loss

($50,000)

Required

1. Compute the break-even point in dollar sales for year 2017.

2. Compute the predicted break-even point in dollar sales for year 2018 assuming the machine is installed and no change occurs in the unit selling price. (Round the change in variable costs to a whole number.)

3. Prepare a forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due.

4. Compute the sales level required in both dollars and units to earn $200,000 of target pretax income in 2018 with the machine installed and no change in unit sales price. (Round answers to whole dollars and whole units.)

5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due.

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