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Integrated Manufacturing Inc. uses CVP tools to analyze overall costs. Total costs for the period were...

Integrated Manufacturing Inc. uses CVP tools to analyze overall costs. Total costs for the period were $100,000. Total sales for the period were $105,000, and the variable cost per unit was $60. Integrated sold 700 units this period. (Write on the Excel)

a.What is Integrated's break-even point in Sales Dollars?

b. If Intergrated wants to generate a 10% return on Sales after taxes, and the tax rate is 30%, how many units must the company sell?

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Answer #1

Requirement a:

Fixed costs
Total costs $100,000
Variable costs [700 units x $ 60] ($42,000)
Fixed costs $58,000
Contribution margin
Sales $105,000
Variable costs ($42,000)
contribution margin $63,000

Contribution margin ratio = Contribution margin ÷ Sales = $63,000 ÷ $105,000 = 60%

Break-even point in Sales in dollars = Fixed costs ÷ Contribution margin ratio = $58,000 ÷ 60% = $96,667

Requirement b:

Required profit = $105,000 x 10% = $10,500

Income before income taxes = $10,500 x (100/70) = $15,000

Contribution margin per unit = ($105,000/700 units) - $60 = $150 - $60 = $90

Sales = (Income before income taxes + Fixed costs) ÷ Contribution margin per unit

= ($15,000 + $58,000) ÷ $90 = 811 units

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