Ritchie Manufacturing Company makes a product that it sells for $160 per unit. T
ID: 2341434 • Letter: R
Question
Ritchie Manufacturing Company makes a product that it sells for $160 per unit. The company incurs variable manufacturing costs of $73 per unit. Variable selling expenses are $15 per unit, annual fixed manufacturing costs are $490,000, and fixed selling and administrative costs are $258,800 per year.
Required
Determine the break-even point in units and dollars using each of the following approaches:
Use the equation method.
Use the contribution margin per unit approach.
Use the contribution margin ratio approach.
Prepare a contribution margin income statement for the break-even sales volume.
Explanation / Answer
Break even point in units and dollar
Using Equation Method
Break even point (in units)
x = Number of units
Price * x = variable cost * x + fixed cost
$160 *x = ($73+$15) *x + ($490,000+$258,800)
$160*x = $88*x + $748,800
$72 *x= $748,800
x = 10400 units
Break even point (in dollar sales)
= x* price per unit
= 10400*$160
= $1,664,000
Using contribution margin per unit
Break even point (in units)
= Fixed cost/(Price -variable cost )
= $748,800/($160-$88)
= 10400 units
Break even point ( in dollar sales)
= Break even point (in units) * price per unit
= 10400*$160
= $1,664,000
Using contribution margin ratio
Contribution margin ratio = ( price - variable cost) /price
= ($160-$88)/$160
= 45%
Break even point (in dollar sales)
= fixed cost/contribution margin ratio
= $748,800/45%
= $1,664,000
Break even points (in dollar sales)
= Break even point (in dollar sales) / Price per unit
= $1,664,000/$160
= 10400 unjts
Contribution margin income statement for break - even sales volume
Particular Amount Sales ( 10400*$160) $1,664,000 - variable cost(10400*($73+$15) $(915,200) Contribution $748,800 -Fixed cost($490,000+$258,800) $(748,800) Profit/Loss 0Related Questions
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