Question

1) Bears Company sells a product for $15 per unit. The variable cost is $10 per unit and fixed costs are $1,750,000. Determine:

1. The Break-Even point in sales units
2. The Break-Even point if selling price were increased to $655 per unit

2) Bear Company sells a product for $15 per unit. The Variable cost is $10 per unit and fixed costs are $1,750,000. Determine:

1. The Break-Even Point in sales units
2. The Sales units required for the company to achieve a target profit of $400,000

3) Jorgensen Company has sales of $380,000,000 and the break-even point is sales dollars is $323,000,000. Determine Jorgensen Company’s margin of safety as a percent of current sales.

Answer 1

1) a. break even point in units = fixed cost / contribution margin

= 1,750,000 / 5

= 350,000 units

Contribution margin = selling price - variable cost per unit

= 15 - 10 = 5 per unit

b. break even point in units = fixed cost / contribution margin

= 1,750,000 / 645

= 2,713 units

Contribution margin = selling price - variable cost per unit

= 15 - 10 = 5 per unit

2) a. break even point in units = fixed cost / contribution margin

= 1,750,000 / 5

= 350,000 units

Contribution margin = selling price - variable cost per unit

= 15 - 10 = 5 per unit

b. Required sale = fixed cost + target profit / contribution margin

= 1,750,000 + 400,000 / 5

= 430,000 units

3) margin of safety as % of sale = current sale - break even sale / current sale x 100

= 380,000,000 - 323,000,000 / 380,000,000 x 100

= 15%