Question

For the past year, LaPrade Company had fixed costs of $70,000, a unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs except that property taxes are expected to increase by $10,000.
a. Determine the break-even sales (in units) for the past year.
b. Determine the break-even sales (in units) for the coming year.

Answer 1

Answer:

a. Break Even points in past year 8,750 units

b. Break Even point in coming year 10,000 units

Explanation:

The breakeven sales in units is calculated by dividing the fixed costs by the contribution margin of each unit of sales.

The selling price is $ 40 and the variable costs per unit are $ 32 so the contribution margin per unit is $ 8.

For past year

To cover the fixed costs of $ 70,000 the breakeven point is calculated as:

$ 70000/ $ 8 = 8.750 units.

For coming year

The fixed costs are increasing by the property taxes increase of $ 10,000 so the fixed costs are $ 80,000

Break even point is calculated as $ 80,000/$8 = 10,000 units.