Question

Problem$ 3.

Kenton Company produces only one product. Normal capacity is 80,000 units per year, and the unit sales price is $20. Relevant costs are:

	Unit Variable Cost	Total Fixed Cost
Materials	$4.00
Direct Labor	$4.80
Factory Overhead	$2.00	$60,000
Marketing expenses	$1.20	$20,000
Administrative expenses		$24,000

Required: Compute the following:

(1 The break-even point in units of product

(2) The break-even point in dollars of sales

(3) The number of units of product that must be produced and sold to achieve a profit of $40,000

(4) The sales revenue required to achieve a profit of $40,000

Answer 1

Answer- 1-Break-even point in units=Fixed cost/ Contribution Margin

Fixed Cost=$60,000+$20,000+$24,000= $104,000

Contribution Margin= Sales- Variable Costs

=$20-($4.00+$4.80+$2.00+$1.20)

=$20-$12

=$8

B.E.P.= $104,000/ $8

=13,000 units

2-Break-even point in dollars of sales= B.E.P. in units *Selling Price

=13,000 units *$20

=$260,000

3-The number of units of products that must be produced and sold to achieve a profit of $40,000

Sales (units) = (Target Profit + Fixed Costs) / Contribution margin per unit

=($40,000+$104,000)/ $8

= 18,000 units

4-The sales revenue required to achieve a profit of $40,000

Sales revenue= target profit+ fixed costs/ Contribution margin per unit * selling price

=$40,000+$104,000/ $8*$20

=$360,000

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