Question

Required information Problem 21-4A Break-even analysis; income targeting and forecasting LO C2, P2, A1 [The following information applies to the questions displayed below.] Astro Co. sold 20,400 units of its only product and incurred a $53,368 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2018’s activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $154,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 Sales $773,160 Variable costs 618,528 Contribution margin 154,632 Fixed costs 208,000 Net loss $(53,368) Problem 21-4A Part 2 2. Compute the predicted break-even point in dollar sales for year 2018 assuming the machine is installed and there is no change in the unit selling price. (Round your answers to 2 decimal places.)

Answer 1

Answer- The predicted break-even point in dollar sales for year 2018 assuming the machine is installed and there is no change in the unit selling price = $482666.67.

Explanation- Break-even point in dollar sales = Fixed costs/ Contribution margin ratio

= ($208000+$154000)/75%

= $362000/75%

= $482666.67

Where- Selling price per unit = $773160/20400 units

= $37.90 per unit

Variable costs per unit = $618528/20400 units

= $30.32 per unit

Variable cost per unit in year 2018 = $30.32 per unit*50%

= $15.16 per unit

Contribution margin per unit = Selling price per unit - Variable costs per unit

= $37.90 per unit - $15.16 per unit

= $22.74 per unit

Contribution margin ratio = (Contribution margin per unit/ Selling price per unit)*100

= ($22.74 per unit/$30.32 per unit)*100

= 75%