Question

Blessed Company manufactures and sells adjustable covers that attach to motor homes and trailers. Blessed developed its budget for the current year if the covers would sell at a price of $400 each.

The variable expenses for each cover were forecasted to be $200 and the annual fixed expenses were forecasted to be $100,000.

Blessed had targeted a profit of $400,000. For the first 5 months of the year, only 350 units had been sold at the established price, with variable expense as planned, and it was clear that the target profit for the year would not be reached unless some actions were taken

Required:

Calculate the Break-Even Point in Units and in Dollars.

Calculate the Current Net income for the first 5 months of the year.

If no changes are made to the selling price or cost structure, estimate the number of units that must be sold during the year to attain the target profit of $400,000.

Answer 1

Selling price per unit = 400

variable cost per unit = 200

annual fixed cost = 100000

Target profit = 400000

(i) BEP = Fixed cost /(Selling price per unit - variable cost per unit)

= 100000 / (400 - 200)

= 100000 / 200

= 500 units per year

(ii) calculation of ner income for the first 5 months -

	Particualrs	Amt $
	Sales (400*350)	140000
less	variable cost (200*350)	70000
	Contribution	70000
less	Fixed cost(100000*5/12)	41666.67
	Profit	28333.33

as fixed cost is a period cost that's why will be appostioned on period basis.

(iii) no. of units to earn target profit supose = x

so by the help of BEP formula x = (Fixed cost + Target profit)/(Selling price per unit - variable cost per unit)

= (100000+ 400000)/(400-200)

= 500000/200

= 2500 units

Please comment in case of any clarification required.