1 Breakeven Analysis and Planning Future Sales
2 cost behavior and projection for a service business

Question

1 Breakeven Analysis and Planning Future Sales2 cost behavior and projection for a service business

Robert · Accepted Answer

QUESTION  1  :  BREAKEVEN ANALYSIS AND PLANNING FUTURE SALES
Write Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are $12 per unit. Fixed overhead is $600,000 per year. Variable selling and administrative costs are $5 per unit, and fixed selling and administrative costs are $300,000 per year. The current sales price is $23 per unit.
Required
1.
What is the breakeven point (BE) in (a) sales units and (b) sales dollars?
a)
BE units ______________
b)
BE dollars  $ _____________
2.
How many units must Write Company sell to earn a profit of $240,000 per year?
___________ units
Solution:
a) Break even units = Fixed costs/ (Selling price – Variable cost per unit)
                                = ($600,000 + $300,000)/ ($23 - $12 - $5)
                                = $900,000/$6
                                = 150,000 units
b) Break even dollars = 150,000 units x $23 = $3,450,000
QUESTION 2 
A strike at one of the company's major suppliers has caused a shortage of materials, so the current year's production and sales are limited to 160,000 units. To partially offset the effect of the reduced sales on profit, management is planning to reduce fixed cost $841,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $23 per unit.
a)
What amount of fixed costs was covered by the total contribution margin of the first 30,

1 Breakeven Analysis and Planning Future Sales 2 cost behavior and projection for a service business

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