Q48CP

Expert-verifiedFound in: Page 1136

Book edition
6th

Author(s)
Tracie L. Miller-Nobles, Brenda L. Mattison

Pages
992 pages

ISBN
9780134486833

**Question: This problem continues the Piedmont Computer Company situation from Chapter 19. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is $750 and the weighed-average variable cost per unit is $450. The company does not expect the sales mix to vary for the next year. Average fixed costs per month are $156,000.**

**Requirements **

**1. What is the number of units that must be sold each month to reach the breakeven point?**

** 2. If the company currently sells 945 units per month, what is the margin of safety in units and dollars? **

**3. If Piedmont Computer Company desires to make a profit of $15,000 per month, how many units must be sold? **

**4. Piedmont Computer Company thinks it can restructure some costs so that fixed costs will be reduced to $90,000 per month, but the weighted-average variable cost per unit will increase to $525 per unit. What is the new breakeven point in units? Does this increase or decrease the margin of safety? Why or why not?**

**Answer**

** **

- The Break-even point is
**520 units** - The margin of safety is
**425 units**and**$318,750** - 570 must sell to earn a profit of
**$15,000** - The new break-even point is
**400 units**, and the margin of safety is**545 units.**

**The break-even point is when the total revenue earned by the business entity equals the total expenditure incurred, indicating that the firm has no loss or gain.**

** **

The company must sell 520 units each month to reach the breakeven point.

To make a profit of $15,000 per month, the company must sell 570 units.

__Calculation of new margin of safety__

When the breakeven unit decreases, the margin of safety unit increases because the earning or net profit increases.

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