Mozena Corporation has collected the following information after its first year

Question

Mozena Corporation has collected the following information after its first year of sales. Sales were $1,500,000 on 100,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $290,000; administrative expenses $270,000 (20% variable and 80% fixed); manufacturing overhead $350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

I was able to calculate the contribution margin for the current year: 300000, contribution margin for projected year: 330000 and fixed costs 471000.

Compute the break-even point in units and sales dollars for the current year.

Break-even point in units units Break-even point in dollars $
Mozena Corporation has collected the following information after its first year of sales. Sales were $1,500,000 on 100,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $290,000; administrative expenses $270,000 (20% variable and 80% fixed); manufacturing overhead $350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. I was able to calculate the contribution margin for the current year: 300000, contribution margin for projected year: 330000 and fixed costs 471000. Compute the break-even point in units and sales dollars for the current year.

Explanation / Answer

Calculate the unit varaible cost and fixed cost:

Variable cost = 40% of $250,000+$511,000+$290,000+20% of $270,000+70% of $350,000

= $1,200,000

Variable cost per unit = $1,200,000/100,000 units = $12

Fixed cost = 60% of $250,000+80% 0f $270,000+20% of 350,000

= $471,000

Fixed cost per unit = $471,000/100,000 units = $4.71

Price per unit = $1,500,000/100,000 units = $15

Break even point in units = Fixed cost/ (Price - Variable cost)

= $471,000/ ($15 -$12)

=157,000 units

Breakeven unit sales = Price per unit*Breakeven sales

=$15*157,000 units

= $2,355,000

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