Question

Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $264 per 100 yards of XT rope.

1. Estimate Product XT’s break-even point in terms of sales units. (1 unit = 100 yards.) (Do not round intermediate calculations.)

Contribution margin (per 100 yds)

Contribution margin ratio Estimate Product XT’s break-even point in terms of sales units. (1 unit = 100 yards) (Round to nearest whole unit) break-even units

Estimate Product XT’s break-even point in terms of sales dollars.

Answer 1

Solution: Calculation of Contribution margin per 100 yards:

Particulars	Amount($)
Sales	330
Less: Variable Cost	264
Contribution	66

Calculation of contribution margin ratio:

Contribution margin ratio = Contribution margin per unit / Sales per unit = 66/330 = .20 or 20%

Calculation of Estimate product XT's Break-even point(in sales unit):

Break-even Sales in units = Fixed Costs / Contribution margin per unit = 211200/66

= 3200 units.

Calculation of estimate product XT's break-even point(in sales dollars):

Break-even sales in dollars = Fixed costs / contribution margin ratio = 211200/20%

= $1,056,000