In 2015, X Company had the following selling price and per-unit variable cost in
ID: 2424769 • Letter: I
Question
In 2015, X Company had the following selling price and per-unit variable cost information:
Selling price
$190.00
Direct materials
30.80
Direct labor
16.60
Variable overhead
30.00
Variable selling and administrative
15.40
In 2015, fixed overhead costs were $360,000, and fixed selling and administrative costs were $288,000.
In 2016, there are only two expected changes. Direct material costs are expected to decrease by 20% per unit, and fixed selling and administrative costs are expected to decrease by $15,000. What must unit sales be in order for X Company to break even in 2016?
Selling price
$190.00
Direct materials
30.80
Direct labor
16.60
Variable overhead
30.00
Variable selling and administrative
15.40
Explanation / Answer
Direct material cost = 30.80 x (1 - 0.20) = $24.64
Fixed Overhead cost = 360000 + 288000 - 15000
= 633000
Contribution per unit = 190 - 24.64 - 16.60 - 30 - 15.40
= 103.36
Breakeven units = 633000/103.36
= 6124 units
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