Break-Even Analysis Demmel Company had 100 customer accounts that generated reve
ID: 2570806 • Letter: B
Question
Break-Even Analysis Demmel Company had 100 customer accounts that generated revenue of $30,100. Costs and expenses for the year were as follows: Cost of revenue Selling, general, and administrative expenses $14,700 9,600 3,300 Assume that 8096 of the cost of revenue and 25% of the selling, general, and administrative expenses are variable to the number of customer accounts. a. What is Demmel's break-even number of accounts, using the data and assumptions above? Round to the nearest whole number. customer accounts b. How much revenue per account would be sufficient for Demmel to break even if the number of accounts remained constant? Round to the nearest dollar. per accountExplanation / Answer
Total Revenue of 100 costumer = $30,100
Revenue per costumer = 30,100÷100 = $301 per customer.
Total customer = 100
Variable expenses = 80% of cost of revenue + 25% of selling, general and administrative expenses = 80% of 14,700 + 25% of 9,600 = 11,760+2,400 = $14,160
Variable expense per customer = Variable expense ÷ Total customer = 14,160÷100 = $141.60 per customer.
Unit Contribution margin = Revenue per customer - Variable expenses per customer = 301-141.60 = $159.40
Fixed expenses = Cost of revenue + Selling, general and administrative expenses + Depreciation, amortization and other expenses - Variable expenses = 14,700+9,600+3,300-14,160 = $13,440
a. Break even number of accounts = Fixed expenses ÷ Unit Contribution margin = 13,440÷159.40 = 84.3 = 84 accounts
Break even in revenue = Fixed expenses × Revenue per customer ÷ Unit Contribution margin = 13,440×301÷159.40 = $25,379.17 = $25,379
b. If the number of accounts remained constant, revenue per account for break even = Break even in revenue ÷ Total customers = 25,379÷100 = $253.79 per account
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