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Chapter 20: Q20-14RQ (page 1119)

What is the breakeven point?

Short Answer

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Answer

The breakeven point is company at no profit or loss condition because contribution is equal to total fixed cost.

Step by step solution

01

Breakeven point

The level of sales at which total sales are equal to total of variable and fixed costs is known as the breakeven point. In other words, the operating income at this level is zero.

02

Three assumptions of breakeven point

  1. Equation approach
  2. Contribution margin approach
  3. Contribution margin ratio approach

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Most popular questions from this chapter

Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?

White Company sells flags with team logos. White has fixed costs of \(639,600 per year plus variable costs of \)4.20 per flag. Each flag sells for \(12.00.

Requirements

1. Use the equation approach to compute the number of flags White must sell each year to break even.

2. Use the contribution margin ratio approach to compute the dollar sales White needs to earn \)32,500 in operating income for 2018. (Round the contribution margin to two decimal places.)

3. Prepare White’s contribution margin income statement for the year ended December 31, 2018, for sales of 73,000 flags. (Round your final answers up to the next whole number.)

4. The company is considering an expansion that will increase fixed costs by 23% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should White undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)

What is a variable cost? Give an example.

What is the purpose of using the high-low method?

Calculating breakeven point in units, contribution margin given Mackler, Inc. sells a product with a contribution margin of \(50 per unit. Fixed costs are \)8000 per month. How many units must Mackler sell to break even?
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