Question

Principal Printing produces custom labels and stationery for companies. In conducting CVP analysis of its Personalized Package, management decided to determine how many of the packages would need to be sold in order to justify continuing the product line. Management determined that fixed costs direct related to this particular product amounted to $54,000 annually. Principal reported $240,000 of gross sales related to this product and variable product costs of $180,000. Assuming that each Personalized Package sells for $12 per unit, what is the minimum amount of total sales dollars of Personalized Packages that Principal needs in order to justify the product line

Answer 1

Answer:

18,000 personalized packages

Explanation:

Profit-volume ratio = ($240,000 - $180,000) / $240,000

Profit-volume ratio = 0.25

Profit-volume ratio= 25%

Break-Even-Point = $54,000 / 25%

Break-Even-Point = 216,000

The minimum personalized packages that needs to sell to break even:

= Break-Even-Point /  Personalized Package sales per unit

= 216,000 / $12

= 18,000 personalized packages