The following information applies to the questions displayed below. This year Ca

Question

The following information applies to the questions displayed below. This year Cairo Company sold 43,000 units of its only product for $1760 per unit. Manufacturing and selling the product required $128,000 of fixed manufacturing costs and $188,000 of fixed selling and administrative costs. Its per unit variable costs follow Materia Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs $ 4.80 3.80 0.48 0.28 Next year the company will use new, material, which will reduce material costs by 50% and direct labor by 50% and will not affect product quality or marketability. Management is considering an increase in the sales price to reduce the number of units soid because the factory's output is nearing its annual output capacity of 48,000 units. Two plans are being considered. U the current level and sel the same volume as last year. This pian willincrease income because of the reduced costs from using the new material. Under pl will decrease unit sales volume by 5%, Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same. nder plan 1, the company will keep the price at an 2, the company will increase price by 20%, This plan 10.00 points Required: 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round your intermediate calculations to 2 decimal places and final answers to the Omit the "$" sign in your response nearest dolar amount. Plan 1 Plan 2 References 14 MacBook Pro esc

Explanation / Answer

BASIC WOKINGS BEFORE ANSWERING THE QUESTION

Contribution margin = Selling price - Total Variable cost per unit  

Contribution margin Ratio = Contribution margin / Selling price per Unit * 100

Question - 1

BEP in dollars of sales = Fixed cost / CM Ratio

Plan - 1 = 316,000 / 0.7125 = 443509

Plan - 2 = 316000 / 0.7604 = 415571

Question - 2

Explanation

For Plan - 1 , 43000 units is used as base to mulitply with selling price of 17.60 and total vairable cost per unit of 5.06.

For plan - 2 40850 Units is used. Because 43000 - 5% decline in volume of sales. When mutiply with 21.12 we get the sales 862752 and with variable cost of 5.06 to get total variable cost of 206701.

Tax @ 30% was calculated on earnings before tax.

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       PLAN - A             PLAN - B Selling price 17.6 21.12 Variable cost Material 2.4 2.4 Labor 1.9 1.9 Variable OH costs 0.48 0.48 Variable Selling 0.28 0.28 Total variable cost 5.06 5.06 Contribution margin 12.54 16.06 Contribution margin ratio 71.25 76.04

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