Question

AStuart Company reported the following data regarding the product it sells

Sales price	$	45
Contribution margin ratio		20	%
Fixed costs	$	360,000

Required

Use the contribution margin ratio approach and consider each requirement separately.

A.    What is the break-even point in dollars? In units?

B.    To obtain a profit of $36,000, what must the sales be in dollars? In units?

C.    If the sales price increases to $48 and variable costs do not change, what is the new break-even point in dollars? In units?

Obtain the below information needed:

a.   Break-even point in dollars

    Break-even point in units

b. Sales in dollars

    Sales in Units

c. Break-even point in dollars

    Break-even point in units

Answer 1

a). Contribution per unit = $45 * 20% = $9 per unit

Contribution % = 20% = 0.20

Break even Point in dollars = Fixed Cost / Contribution %

= $360000 / 0.20

= $1800000

Break Even Point in Units = Fixed Cost / Contribution per unit

= $360000 / $9

= 40000 units

b) If Profit is $36000

Sales in Dollars = (Profir + Fixed Cost) / Contribution %

= ($36000 + $360000) / 0.20

= $396000 / 0.20

= $1980000

Sales in Units = (Profir + Fixed Cost) / Contribution per unit

= ($36000 + $360000) / $9

= $396000 / $9

= 44000 units

c). Sales Price per unit = $48

Variable Cost per unit = $45*0.80 = $36

Contribution per unit = $48 - $36 = $12

Contribution in % = $12 / $48 = 0.25 or 25%

Break Even Point in Dollars = Fixed Cost / Contribution %

= $360000 / 0.25

= $1440000

Break Even Point in Units = Fixed Cost / Contribution Per unit

= $360000 / $12

= 30000 Units