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.
Contribution margin per unit: $54.
Break-even point: 3,000 units.
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.
Sales price per unit
Less: Variable cost per unit
Contribution margin per unit
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.
Contribution Margin Income Statement
For Year Ended December 31, 2017
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.
Hudson Co. reports the contribution margin income statement for 2017 below. Using this information, compute Hudson Co.’s (1) break-even point in units and (2) break-even point in sales dollars.
Contribution margin income statement
For the year ended December 31, 2017
Sales (9,600 units @ $225 each)
Less: Variable cost (9,600 units @ $180 each)
Less: Fixed cost
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