Question

CollegePak Company produced and sold 79,000 backpacks during the year just ended at an average price of $39 per unit. Variable manufacturing costs were $16.50 per unit, and variable marketing costs were $3.78 per unit sold. Fixed costs amounted to $549,000 for manufacturing and $223,200 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.)

Required:

1. Compute CollegePak’s break-even point in sales dollars for the year. (Do not round intermediate calculations. Round your final answer up to the nearest whole dollar.)
2. Compute the number of sales units required to earn a net income of $585,000 during the year. (Do not round intermediate calculations. Round your final answer up to nearest whole number.)
3. CollegePak's variable manufacturing costs are expected to increase by 10 percent in the coming year. Compute the firm’s break-even point in sales dollars for the coming year. (Do not round intermediate calculations. Round your final answer up to the nearest whole dollar.)
4. If CollegePak’s variable manufacturing costs do increase by 10 percent, compute the selling price that would yield the same contribution-margin ratio in the coming year. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

the correct answer for #1 is $1,608,750 and #2 is 72,500. i just need 3 and 4

Answer 1

Answer 3)

Calculation of break-even point if variable manufacturing cost increases by 10%

Particulars	Amount (in $)
Selling Price	39.00
Variable Manufacturing Cost (16.50 X 110%)	18.15
Variable Marketing Cost	3.78
Contribution Margin	17.07

Break-even point = (Total Fixed Cost)/ Contribution margin per unit

                                = ($549,000 + $ 223,200)/ 17.07

                                = 45,237.26 or 45,238 units     

Therefore the company needs to sell 45,238 units in order to break-even.

Note: We have rounded off the number of units to next higher whole number as a lower level of sales would have resulted in loss for the company.

Answer 4)

Calculation of desired selling price to maintain earlier contribution-margin ratio

Contribution-margin ratio = contribution margin per unit/ selling price per unit

Contribution-margin ratio prior to increase in variable manufacturing cost:

Contribution-margin ratio = $18.72/$ 39.00

= 0.48

Calculation of Contribution-margin ratio after Increase in variable manufacturing costs

Let the selling price per unit be 'x'

Contribution-margin ratio = (sales - variable cost per unit)/ selling price per unit

0.48 = (x - 21.93)/x

0.48x = x - 21.93

x = 42.17 ( rounded off)

Therefore the company must increase its selling price per unit to $ 42.17 to maintain contribution-margin ratio of 0.48.