Forest Company sells a product for $145 per unit. The Costs that vary in total d

Question

Forest Company sells a product for $145 per unit. The Costs that vary in total dollar amount as the level of activity changes.variable cost is $85 per unit, and Costs that tend to remain the same in amount, regardless of variations in the level of activity.fixed costs are $486,000.

Determine (a) the The level of business operations at which revenues and expired costs are equal.break-even point in sales units and (b) the break-even point in sales units if the company desires a target profit of $160,380.

a. Break-even point in sales units units b. Break-even point in sales units if the company desires a target profit of $160,380 units

Explanation / Answer

(a) Break even point is the volume at which the sales value is equal to the costs associated

In this case, let us assume the no. of units sold as X

The sales value = X * $145 = $145X

Variable Costs = X * $85 = $85X

Fixed Costs = $ 486,000

For the breakeven point, 145X = 85X + 486,000

Hence, 60X = 486,000

Therefore, X which is the break even point in sales units = 486,000/60 = 8,100 units

(b) In case the company desires a target profit of $ 160,380

Let us assume the no. of units sold as Y

Sale Value = $145Y

Variable Costs = $85Y

Fixed Costs = 486,000

Sales - Costs = Profit

Therefore, $145Y-$85Y-486,000 = 160,380

Hence, 60Y = 160,380 + 486,000 = 646,380

Hence, Y = 646,380/60 = 10,773 units

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