Question

The condensed income statement for the Nancy and Paul partnership for 2022 is as follows.

Nancy and Paul Company Income Statement For the Year Ended December 31, 2020
Sales (244,800 units)				$1,224,000
Cost of goods sold				816,000
Gross profit				408,000
Operating expenses
Selling		$306,000
Administrative		155,550
				461,550
Net loss				$(53,550	)

A cost behavior analysis indicates that 75% of the cost of goods sold are variable and 40% of the selling expenses are variable. Administrative expenses are $94,350 fixed.

Compute the break-even point in total sales dollars for 2022. (Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 2,520.)

Break-even point in dollars

Break even in units

Answer 1

Calculation of fixed costs

Cost of goods sold (25%) =$204,000

Selling expenses (60%) =$183,600

Administrative expenses=$94,350

Total fixed costs =$481,950

Variable costs:

Cost of goods sold (75%) =$612,000

Selling expenses (40%) =$122,400

Administrative ($155,550-$94,350) =$61,200

Total variable costs =$795,600

Variable cost per unit =$795,600/244,800=$3.25

Selling price per unit =$1,224,000/244,800 =$5

Contribution margin per unit =$5-$3.25 =$1.75

Contribution margin ratio=$1.75/$5 =35%

Break even point in dollars=Fixed cost / Contribution margin ratio=$481,950/35% =$1,377,000

Break even point in units = Fixed cost/ Contribution margin per unit

=$481,950/$1.75

=275,400 units.