Question

# 1. Able Co. manufacturers a single product which sells for \$45 each and whose variable costs...

1. Able Co. manufacturers a single product which sells for \$45 each and whose variable costs are \$15 each. Fixed costs are \$600,000 for the year. What is the break-even point in dollars? In Units?

2. If the owners in Problem 1 desire a profit of \$90,000 for the year, how many units must they sell?

3. Using the information in Problem 1, if the fixed cost goes up to \$960,000, but the variable cost is reduced to \$13 per unit, what is the new break-even point in dollars? In Units? Would you prefer to be in the situation of Problem 1 or Problem 3? Defend your position.

1. Break even point = fixed cost / profit volume ratio

Profitvolume ratio = contribution/ sales *100

= \$45-\$15/\$45 *100

= 66.66%

Break even point (in \$) = \$600000/66.66

= \$900000

Break even point (in units ) = Fixed cost / contribution

= \$600000/ \$45-\$15

= \$600000/\$30

= 20,000 units

2. Required sales ( in units ) = Fixed cost + desired profit / contribution

Contribution = sale price - variable cost = \$30

Required sales units = \$600000 + \$90000/\$30

= 23,000 units

3. Break even point = \$960000/\$45-\$13

= 30000 units

Break even sales = 30000*45

= \$1350000

break even point is a position where the firm is in no profit - no loss position i.e zero profit .

Problem 1 position is prefarable as low break even sales can lead to higher profits as the sales increases .

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