Break-Even Sales and Sales to Realize Operating Income For the current year endi

Question

Break-Even Sales and Sales to Realize Operating Income

For the current year ending December 31, McAdams Industries expects Costs that tend to remain the same in amount, regardless of variations in the level of activity.fixed costs of $551,600, a unit Costs that vary in total dollar amount as the level of activity changes.variable cost of $56, and a unit selling price of $84.

a. Compute the anticipated break-even sales (units).
units

b. Compute the sales (units) required to realize operating income of $126,000.
units

Explanation / Answer

BEP in units = Fixed cost/ (sales price – variable cost)

                      = 551600/(84 – 56)

                      = 551600/28

                      = 19700

To reach BEP company must sell 19700 units

Sales required for desired profit = (Fixed cost+ desired profit)/ (sales price – variable cost)

                                                           = 551600+ 126000/(84 – 56)

                                                           = 677600/ 28

                                                            = 24200 units

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