Answer:
a) Break even in units= 12, 684 units; Break even in dollars= 547,727.27
b) Break even in units= 19,052 units; Break even in dollars= $822,727.27
c) The salaries to pay to get a profit of $121,600 is $196,400
Explanation:
Solution to A) Compute the Contribution Margin per unit and use it to calculate the break -even point
1. Per unit Contribution Margin is calculated as the
Price- Variable Cost (Manufacturing and Selling)
=$43- $17-$7
= $19
Based on this calculation, then calculate the Contribution Margin Ratio
= Contribution/Sales
= $19/$43 = 0.44 or 44%
2. Next step, calculate total fixed cost as follows:
Total fixed cost = Manufacturing + Administrative Fixed costs)
= $160,000 + $81,000
= $241,000
Now, calculate the Break Even in Units =
The total fixed cost/ Contribution Margin
= $241,000/$19
= 12, 684 units
Now, calculate the Break even in dollars=
Total fixed cost/ Contribution margin ratio
= $241,000/0.44
= $547,727.27
Solution B: Using the Contribution per unit Contribution Margin, determine Sales level in Units and dollars required for a profit of $121,600
What is the desired profit $121,600
The total fixed cost <u> $241,000</u>
Total amount is $362,000
Therefore, calculate the Break Even in Units using the new total fixed cost
= $362,000/$19= 19,052 units
Also, Calculate the Break even in dollars
= $362,000/ 0.44= $822,727.27
Solution C: Calculate salaries for salespeople to sell 21,500 units and make a profit of $121,600
We can start with an equation assumption as follows:
Let the required fixed cost be as follows:
The total fixed cost in solution 1 + X( the additional fixed cost required).
Therefore, the target profit
= Target Profit= Units to sell x (price- variable manufacturing cost) - the total fixed cost
= $121,600= 21,500 units x (43-17) - $241,000+ x
= $121,600= (21,500 x 26)- (241,000+ x)
=$121,600= 559,000- 241,000 -x
x= 559,000-241,000-121,600
x= $196,400
The salaries to pay to get a profit of $121,600 is $196,400
