Required information [The following information applies to the questions display

Question

Required information

[The following information applies to the questions displayed below.]

Astro Co. sold 20,300 units of its only product and incurred a $78,798 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2018’s activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $153,000. The maximum output capacity of the company is 40,000 units per year.

Required:

1. Compute the break-even point in dollar sales for year 2017. (Round your answers to 2 decimal places.)

ASTRO COMPANY
Contribution Margin Income Statement
For Year Ended December 31, 2017 Sales $ 767,340 Variable costs 537,138 Contribution margin 230,202 Fixed costs 309,000 Net loss $ (78,798 )

Explanation / Answer

Break-even point in dollar sales for year 2017 = $1030000

Explanation;

Formula of break-even point (in dollar sales) is as follow;

Break-even point (in dollar sales) = Fixed costs * Sale price / Contribution margin per unit

Fixed costs = $309000

Sale price per unit ($767340 / 20300) = $37.80

Contribution margin per unit ($230202 / 20300) = $11.34

Now let’s put values in the above given formula;

Break-even point (in dollar sales) = $309000 * $37.80 / $11.34 = $1030000

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

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