Jarvis Company produces a product that has a selling price of $20.00 and a varia
ID: 2508156 • Letter: J
Question
Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars?
$150,000
$200,000
$62,500
$100,000
Pierce Company's break-even point is 12,000 units. Its product sells for $25 and has a $10 variable cost per unit. What is the company's total fixed cost amount?
$250,000
$180,000
$120,000
Fixed costs cannot be computed with the information provided.
Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 800,000 units, the company pays $600,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $250,000 of which $70,000 are fixed costs. What is the amount of contribution margin per unit?
$0.40
$0.5375
$0.25
None of these is correct.
M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?
$75,000
$50,000
$83,333
$125,000
Explanation / Answer
(a) Computation of the Break-even point in sales doller.We have,
Step1: Computation of the Profit/Volume ratio.We have,
Profit/volume ratio = Contribution / Selling price * 100
Profit/Volume ratio = 5.00 / 20.00 * 100 = 25 %
Step2: Computation of the Break-Even point in sales doller.We have,
Break-even point = Total Fixed Cost / Profit-Volume ratio
Break-even point = 50,000 / 25%
Break-even point = $ 200,000
Hence, the Break-Even point in sales doller is $ 200,000.
(2) Computation of the company total fixed cost amount.We have
Step1: Computation of the Profit/Volume ratio.We have,
Profit/volume ratio = Contribution / Selling price * 100
Profit/Volume ratio = 15.00 / 25.00 * 100 = 60 %
Step2: Computation of the Company total fixed cost.We have,
Break-even point = Total Fixed Cost / Profit-Volume ratio
(12,000 x 25 ) = Total fixed cost / 60%
Total fixed cost = 300,000 x 60%
Total fixed cost = $ 180,000
Hence, the company total fixed cost amount is $ 180,000.
(3) Computation of the contribution margin per unit.We have,
Step1: Computation of the total variable cost.We have,
Variable production overhead ( $ 600,000 / 2 ) = $ 300,000
General,selling, and administrative variable overhead (250,000 - 70,000) = $ 180,000
Total variable overhead ( 300,000 + 180,000) = $ 480,000
Step2: Computation of contribution margin per unit.We have,
Contribution margin = Sales - Variable cost
Contribution margin = 800,000 - 480,000 = $ 320,000
Contribution margin per unit = Contribution margin / total sales
Contribution margin per unit = 320,000 / 800,000 = 0.40
Hence, the amount of contribution margin per unit is 0.40
(4) Computation of the amount of sales to earn the desired profit.We have,
Let the total sales be x.
Total sales - Total variable cost = Fixed cost + Profit
x( 5.00 - 3.00) = 30,000 + 20,000
2.00 x = 50,000
x = 50,000 / 2.00
x = 25,000 units
Total sales in amount = 25,000 x 5.00 = $ 125,000
Hence, the amount of sales that will be necessary to earn the desired profit is $ 125,000.
Selling Price $ 20.00 Less: Variable cost $ 15.00 Contribution $ 5.00Related Questions
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