Question

Roberts Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
Variable costs per unit:
Manufacturing:
Direct materials $ 22
Direct labor $14
Variable manufacturing overhead $5
Variable selling and administrative expenses $3
Fixed costs per year:
Fixed manufacturing overhead $270,000
Fixed selling and administrative expenses $210,000

During its first year of operations Roberts produced 60,000 units and sold 60,000 units. During its second year of operations it produced 75,000 units and sold 50,000 units. In its third year, Roberts produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $52 per unit.

Compute the company’s break-even point in units sold.

Answer 1

Answer:

Break Even Output = 60000 units [In first year of operation]

Explanation:

Break Even point is where : Profit i.e Total Revenue - Total Cost = 0 , so Total Revenue = Total Cost.

Total Revenue = Price x Quantity

Let quantity = x

So, Total Revenue = 52x  

Total Cost = Total fixed cost + total variable cost

= (22 + 14 + 5 + 3)(x) + (270000 + 210000)

= 44x + 480000

Profit = Total Revenue - Total Cost  = 0 :

→ 52x - 44x - 480000 = 0

8x = 480000

x = 480000 / 8 = 60000

x i.e Break Even Output = 60000 units [In first year of operation]