Question

The DeWayne Company sells binoculars for $140 per unit. The variable cost is $100 per unit while the

fixed costs are $1,200,000.

Compute:

- The anticipated break-even sales (units) for binoculars.
- The sales (units) for binoculars required to realize the target operating income of $400,000.
- Determine the probable operating income (loss) if sales total of 32,000 units.
- If the selling price goes up to $150 per unit while all costs remain the same, what is the new break-even point?

Please show work, thanks!!

Answer #1

Break even point in units = Fixed cost/Unit contribution margin = 1,200,000/(140-100) = 1,200,000/40 = 30,000 units |

Units to be sold = (Fixed costs + Target profit)/Unit contribution margin = (1,200,000+400,000)/(140-100) = 1,600,000/40 = 40,000 units |

Probable operating income = Total Contribution margin - Fixed cost = (140-100)*32,000 units - 1,200,000 = 1,280,000 - 1,200,000 = 80,000 |

New unit contribution margin = 150 - 100 = 50 Breakeven point = 1,200,000/50 = 24,000 units |

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