If my company has a maximum capacity of 200,000 units per year. Variable manufac

Question

If my 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 of each unit is $23. a. What is the breakeven point in (1) sales units and (2) sales dollars? b. how man units do I have to sell to earn a profit of $240,000 per year? c. Assume a strike occurs at one of the company

Explanation / Answer

Contribution

= Selling price – VC

= 23 – 12 – 5

= 6

1)

Break even point

= Fixed cost / Contribution

= 600000+300000 / 6

= 150000

Break even point in dollar value = 150000 * 23

= $3450000

2)

Units to be sold to earn a profit of 240000

= Profit +Fixed cost/Contribution

= 240000 + 900000 / 6

= $190000

3)

a) Fixed cost covered

= Units * contribution

= 30000 * 6

= 180000

b)

Remaining fixed cost

= 841000 – 180000

= 661000

Contribution margin per unit

= Remaining fixed cost + Profit desired / Units

= 661000 + 210000 / 130000

= $6.7/units.

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