Question

Sunland Company estimates that variable costs will be 60.00% of sales, and fixed costs will total $632,000. The selling price of the product is $5. Compute the break-even point in (1) units and (2) dollars.

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Sunland Company estimates that variable costs will be 60.00% of sales.

Fixed costs= $632,000

The selling price of the product is $5.

First, we need to calculate the unitary variable cost:

Unitary variable cost= 5*0.6= $3

Now, using the following formulas, we can determine the break-even point in units and dollars.

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 632,000 / (5 - 3)

Break-even point in units= 316,000 units

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 632,000 / (2/5)

Break-even point (dollars)= $1,580,000