In 2015, X Company had the following selling price and per-unit variable cost in

Question

In 2015, X Company had the following selling price and per-unit variable cost information:

In 2015, fixed overhead costs were $353,000, and fixed selling and administrative costs were $270,000.

In 2016, there are only two expected changes. Direct material costs are expected to increase by 10% per unit, and fixed selling and administrative costs are expected to increase by $20,000. What must unit sales be in order for X Company to break even in 2016?

Selling price $152.80 Direct materials 43.30 Direct labor 11.60 Variable overhead 21.30 Variable selling and administrative 12.70

Explanation / Answer

     COMPUTATION OF COSTS FOR 2016

FIXED COSTS = fixed selling and administrative costs are expected to increase by $20,000

= FIXED OVERHEAD COSTS + FIXED SELLING AND ADMINISTRATIVE COSTS + 20000

= 353000 + 270000 + 20000

= $643000

VARIABLE COSTS = . Direct material costs are expected to increase by 10% per unit

= (DIRECT MATERIAL+10%) + DIRECT LABOUR + VARIABLE OVERHEAD +VARIABLE SELLING AND ADMINISTRATIVE COSTS

= (43.3 + 4.33) + 11.6 + 21.3 + 12.7

= 47.63+ 11.6 + 21.3 + 12.7

= $93.23

CONTRIBUTION PER UNIT = SELLING PRICE - VARIABLE COST

= 152.8 - 93.23

= $59.57

BREAK EVEN SALES = FIXED COST / CONTRIBUTION PER UNIT

= 643000 / 59.57

= 10794 UNITS (APPROX)

Thus X Company must sell 10794 units in order to brek even in 2016.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.