Company sells one product for a price of $100.00 per unit. The variable producti
ID: 2375026 • Letter: C
Question
Company sells one product for a price of $100.00 per unit. The variable production cost is $40.00 per unit.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Total fixed cost = $1.8 million
Current sales level = 75,000 units
Calculate the following
a. BEP units
b. BEP in dollars
c. What is the current profit?
d. How many units should be sold if company needs a profit of $3 million?
BONUS: 10 points
Company is currently paying a fixed salary of $250,000 to the sales people. Company is thinking of cancelling the salary and paying a sales commission of $5 per unit sold. If this is implemented
a. What will be the BEP units?
b. How many units should the company sell in order to earn the same current profit you calculated in part c above?
Explanation / Answer
1)
profit per unit is 100 - 40 = 60
a) break even point = 1,800,000 / 60 = 30,000
b) BEP dollars is 100 * 30,000 = 3,000,000
c) current profit is 75,000 * 60 - 1,800,000 = 2,700,000
d) 3,000,000 = x * 60 - 1,800,000 => x = 80,000 units
2)
a)
New BEP.
contribution margin is 100 - 40 - 5 = 55
new fixed costs is 1,800,000 - 250,000 = 1,550,000
Hence the new BEP is 1550000 / 55 = 28181.8 = 28,182 units
b)
to earn 2,700,000
2,700,000 = 55 * x - 1550000
x = 77272.72
= 77,273 units
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