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Chapter 20: Q4TI (page 1105)

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.

14. Variable costs increase by \)10 per unit.

15. Fixed costs decrease by $600.

16. Sales price increases by 10%.

Short Answer

Expert verified

14.120 Units

15. 90 Units

16. 86 Units

Step by step solution

01

Calculation of breakeven point in units if variable costs increase by $10 per unit

Required sales in units = Fixed costs + Target profit/ Contribution margin per unit

=$6,000+$0/($100-$50)

=120 units

02

Calculation of breakeven point in units if fixed costs decrease by $600

Required sales in units = New Fixed costs + Target profit/ Contribution margin per unit

=($6,000-$600)+$0/($100-$40)

=$5,400/$60

=90 units

03

Calculation of breakeven point in units if sales price increase by 10%

New Sales Price = Existing Price (1+Increase in sales Price)

=$100(1+0.1)

=$110

Required sales in units = Fixed costs / Contribution margin per unit

=$6,000/($110-$40)

= 86 Units

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Most popular questions from this chapter

S20-9 Computing contribution margin, units and required sales to break even, units to achieve target profit

Compute the missing amounts for the following table:

Identifying variable, fixed, and mixed costs

Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.

1. Units of production depreciation on routers used to cut wood enclosures.

2. Wood for speaker enclosures.

3. Patents on crossover relays.

4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.

5. Crossover relays.

6. Straight-line depreciation on manufacturing plant.

7. Grill cloth.

8. Insurance on the corporate office.

9. Glue.

10. Quality inspector’s salary.

Determine how each change effects the elements of the cost-volume-profit graph by placing an X in the appropriate column(s).


EFFECT

Sales Line
Fixed Cost Line
Total cost line
Breakeven point

Change

Slope Increases

Slope decreases

Shifts up

Shifts Down

Slope Increases

Slope Decreases

Increases

Decreases

Sales price per unit Increases

Sales price per unit Decreases

Variable cost per unit Increases

Variable cost per unit decreases

Total fixed cost increases

Total fixed cost decreases

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

The budgets of four companies yield the following information:

Company

Beach Lake Mountain Valley

Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)

Variable Costs (a) 60,000 525,000 100,800

Fixed Costs (b) 232,000 260,000 (k)

Operating Income (Loss) 285,600 (e) (g) 31,500

Units Sold 170,000 10,000 (h) (l)

Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

See all solutions

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