Explanation:
1. The computation of the company wide break-even point in dollar sales is shown below:
Break even point = (Traceable fixed expenses + Common fixed expenses ) ÷ (Profit volume Ratio)
where,
Contribution margin = Sales - Variable expenses
= $450,000 - $225,000
= $225,000
And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100
= ($225,000) ÷ ($450,000) × 100
= 50%
So, the company wide break even point in dollar sales is
= ($126,000 + $63,000) ÷ (50%)
= $378,000
b. For Chicago
Break even point = (Traceable fixed expenses) ÷ (Profit volume Ratio)
where,
Contribution margin = Sales - Variable expenses
= $150,000 - $45,000
= $105,000
And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100
= ($105,000) ÷ ($150,000) × 100
= 70%
So, the company wide break even point in dollar sales is
= ($78,000) ÷ (70%)
= $111,429
For Minneapolis
Break even point = (Traceable fixed expenses) ÷ (Profit volume Ratio)
where,
Contribution margin = Sales - Variable expenses
= $300,000 - $180,000
= $120,000
And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100
= ($120,000) ÷ ($300,000) × 100
= 40%
So, the company wide break even point in dollar sales is
= ($48,000) ÷ (40%)
= $120,000
c. The company wide break even point in sales dollars is $378,000 and the total is $111,429 + $120,000 = $231,429
So, the company wide break even point is greater than the sum of the Chicago and Minneapolis break-even points due to the common fixed expenses
