Question

Using CVP analysis to find break even points and target profit volumes Mimi Incorporated has a targeted operating income of $518,000 for the upcoming year. The selling price of its single product is $40.50 each, while the variable cost per unit is $12.50. Fixed costs total $182,000. Calculate the following:
a. Contribution margin per unit
b. Breakeven point in units
c. Units to be sold to earn the targeted operating income

Answer 1

Answer:

a. $28 per unit

b. 6,500 units

c.  25,000 units

Explanation:

a. The computation of the contribution margin per unit is shown below:

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $40.50 - $12.50

= $28 per unit

b. The formula to compute the break even point in units is shown below:

= (Fixed expenses ) ÷ (Contribution margin per unit)  

= ($182,000) ÷ ($28)

= 6,500 units

c. The formula is shown below:

= (Fixed expenses + target operating income) ÷ (Contribution margin per unit)

= ($182,000 + $518,000) ÷ ($28)

= 25,000 units