Use the below table to answer the following questions. Selling Price = $33.00 Re
ID: 2330322 • Letter: U
Question
Use the below table to answer the following questions.
Selling Price = $33.00
Required
Determine the sales volume, fixed cost, and variable cost per unit at the break-even point.
Determine the expected profit if Benson projects the following data for Delatine: sales, 3,700 bottles; fixed cost, $30,800; and variable cost per unit, $9.
Benson is considering new circumstances that would change the conditions described in Required b. Specifically, the company has an opportunity to decrease variable cost per unit to $7 if it agrees to conditions that will increase fixed cost to $40,800. Volume is expected to remain constant at 3,700 bottles. Determine the effects on the company’s profitability if this opportunity is accepted.
Sales Volume Fixed Cost Variable Cost 1,700 2,700 3,700 4,700 5,700 Profitability $ 30,800 7 $ 13,400 $ 39,400 $ 65,400 $ 91,400 $ 117,400 30,800 8 11,700 36,700 61,700 86,700 111,700 30,800 9 10,000 34,000 58,000 82,000 106,000 40,800 7 3,400 29,400 55,400 81,400 107,400 40,800 8 1,700 26,700 51,700 76,700 101,700 40,800 9 – 24,000 48,000 72,000 96,000 50,800 7 (6,600 ) 19,400 45,400 71,400 97,400 50,800 8 (8,300 ) 16,700 41,700 66,700 91,700 50,800 9 (10,000 ) 14,000 38,000 62,000 86,000Explanation / Answer
(a)
Break even point refers to the volume of output where a firm earns no profits and suffers no losses. From the table given in the question, it can be seen that when the volume of output is 1,700 units, profit earned is 0. Hence, break even point is achieved when 1,700 units are sold.
Sales volume at break even = 1,700 x 33
= $56,100
Fixed cost at break even = $40,800
Variable cost at break even = $9 per unit
(b)
Calculation of expected profit when sales is 3,700 units
(c)
Calculation of expected profit when sales is 3,700 units
In this case, profit will decrease by $2,600 (58,000 - 55,400)
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$ Sales (3,700 x 33) 122,100 Less: Variable cost (3,700 x 9) -33,300 Contribution margin 88,800 Less: Fixed cost 30,800 Profit 58,000Related Questions
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