Question

Q97. If a firm has a break-even point of 20,000 units and the contribution margin on the firm's single product is $4.00 per unit, what will the firm's EBIT (operating profit) be at sales of 30,000 units?

Q98A. A company currently sells for $100 a product that has a variable cost per unit of $48. Fixed costs are $910,000 and not expected to change in the next period. If the company desires to reduce its break-even point by 1,250 units, by how much must they reduce variable costs?

Q98B. Winners Inc. has a break-even point in sales of $2,000,000 Variable expenses are 70% of sales If the company lost $100,000 last year, sales must have amounted to:

Q96B. A company currently has fixed cost of $1,541,000, which will increase by $307,000 if the company expands its production facilities. Currently, it sells its product for $47 which will be decreased to $46 with the company expansion. The product has a variable cost per unit of $24. How many more units must the company sell to break even, at the new sales price per unit, than it did to break even prior to the increase in fixed cost. -----------------------------------------------------------------------------------------------------------------------------------

Answer 1

(Q97)

Break-even point = Fixed cost (FC) / Contribution margin per unit

20,000 = FC / $4

FC = 20,000 x $4 = $80,000

When Sales (Q) = 30,000 units,

Contribution margin = 30,000 x $4 = $120,000

EBIT = Contribution margin - FC = $120,000 - $80,000 = $40,000

(Q98A)

Current break-even point = $910,000 / $(100 - 48) = $910,000 / $52 = 17,500

New break-even point = 17,500 - 1,250 = 16,250

If new unit variable cost be V, then

16,250 = $910,000 / $(100 - V)

$(100 - V) = $910,000 / 16,250 = $56

V = $(100 - 56) = $44

NOTE: As per Answering Policy, 1st 2 questions are answered.