eBook Cornerstone Exercise 16.2 (Algorithmic) Break-Even Units: Units for Target

ID: 2596827 • Letter: E

Question

eBook Cornerstone Exercise 16.2 (Algorithmic) Break-Even Units: Units for Target Profit Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 20,000 units at a price of $390 each. Product costs include: Direct materials Direct labor Variable overhead Total fixed factory overhead 82.00 $47.00 $12.00 $639,900 Variable selling expense is a commission of 6 percent of price; fixed selling and administrative expenses total $94,600 Required: 1. Calculate the sales commission per unit sold. If required, round your answers to the nearest dollar. Use rounded answers in subsequent computations. per unit Calculate the contribution margin per unit. 3 per unit 2. How many units must Jay-Zee Company sell to break even? Round your answer to the nearest whole number. * units

Explanation / Answer

Sales Commission = 6% of Selling price

= 6% * $390

Sales Commission / variable Selling expense = $23.4

Variable cost per unit = Direct Material + Direct Labor + Variable Overhead per Unit + Variable Selling expense

= 82 + 47 + 12 + 23.4

Variable cost per unit = $164.4

Contribution Margin per unit = Sale Price – Variable Cost

= 390 – 164.4

Contribution Margin per unit = $225.6

Break Even point = Fixed Cost / Contribution margin per unit

= (639,900 + 94,600) / $225.6

Break Even point = 3,256 units

Particulars

In $

Sales (3256 units * 390)

1,269,840

Variable Cost @164.4

(535,286.4)

Contribution Margin

734,553.6

Fixed Cost(639,900 + 94,600)

734,500

Operating Income

53.6

There will be some operating income as the Breakeven Units are in points and we cannot sell units in points so if we will round off then there will be some income.

Operating income Target = $409,512

Let no. of units to be sold to achieve profit = x

Operating Income = Sale – Variable cost – Fixed cost

$409,512 = (390 * x) – (164.4 * x) - 734,500

$409,512 = 390x – 164.4x - 734,500

$409,512 + 734,500 = 225.6x

5071 Units = x

No. of units to be sold to achieve profit =5071 Units

There will be some Extra income as the Units are in points and we cannot sell units in points so if we will round off then there will be some income.

Operating income Target = $395,500

Let no. of units to be sold to achieve profit = x

Operating Income = Sale – Variable cost – Fixed cost

$395,500= (390 * x) – (164.4 * x) - 734,500

$395,500= 390x – 164.4x - 734,500

$395,500+ 734,500 = 225.6x

5009 Units = x

No. of units to be sold to achieve profit =5009 Units