Question

Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store:

Sales price per pair of sandals	$	32
Variable expenses per pair of sandals		16
Contribution margin per pair of sandals	$	16
Fixed expenses per year:
Building rental	$	9,600
Equipment depreciation		12,000
Selling		9,600
Administrative		16,800
Total fixed expenses	$	48,000

Required:

1. What is the break-even point in unit sales and dollar sales? (Do not round intermediate calculations.)

Answer 1

1)

Break-even point in unit sales = Total fixed costs / Contribution Margin per unit

= $48,000 / $16 per unit

= 3,000 units

Therefore, break-even point in units is 3,000.

Break-even point in sales dollars = Total fixed costs / Contribution Margin Ratio

Contribution Margin Ratio = Contribution margin per unit / Selling price per unit * 100

= $16 per unit / $36 per unit * 100

= 50% or 0.50

so -

Break-even point in sales dollars = $48,000 / 0.50

= $96,000

Therefore, break-even point in sales dollars is $96,000.

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