Question

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company’s annual fixed costs are $562,500. (1) Prepare a contribution margin income statement for Blanchard Company showing sales, variable costs, and fixed costs at the break-even point. (2) Assume the company’s fixed costs increase by $135,000. What amount of sales (in dollars) is needed to break even?

Answer 1

Answer:

Part (a)

At the break-even position, the Income Statement is as under:

Sales   12500 * $180                     $2,250,000

Variable costs  12500 * $135       ($1,687,500)

Contribution Margin                       $562,500

Fixed Cost                                      ($562,500)

Profit for the year                              $0

Part (B)

The sales required to breakeven due to increased fixed cost is $2,790,000

Explanation:

The breakeven point at normal fixed costs is:

Breakeven Point = Fixed Cost / Contribution per unit

Putting values we have:

Breakeven Point = $562,500 / ($180 - $135)  = 12500 Units.

If the fixed costs increases by $135,000 which means the fixed cost becomes $697,500 then the breakeven point increases to:

Breakeven Point = $697,500 / ($180-135) = 15500 Units

The Sales required in dollars to breakeven on this new fixed cost level is:

Breakeven Sales = 15500 Units * 180 = $2,790,000