Question

Problem 14-10

Cranberry Wood Products Inc. spends an average of $10.50 in labor and $12.00 in materials on every unit it sells. Sales commissions and shipping amount to another $2.50. All other costs are fixed and add up to $146,000 per month. The average unit sells for $32.00.

1. What is Cranberry's contribution? Round the answer to two decimal places.
   $
   
   What is Cranberry's contribution margin? Round the answer to two decimal places.
   %
2. What is the firm's breakeven point in units? Round the answer to the nearest whole number.
   units
3. Calculate the dollar breakeven point. Do not round intermediate calculations. Round the answer to the nearest whole dollar.
   $
4. Sketch the breakeven diagram.

Answer 1

1) Sales per Unit = $32

Variable Cost per unit = $10.50 + $12 + $2.50

= $25

- Cranberry's Contribution = Sales per Unit - Variable Cost per unit

= $ 32 - $ 25

= $7.00

- Cranberry's Contribution margin = (Sales per Unit - Variable Cost per unit)/Sales per Unit

= (32 - 25)/32

= 28.00%

2) Monthly Fixed Cost = $ 146,000

Annual Fixed cost = $146,000*12 = $ 1752,000

Breakeven Point in units = Fixed Cost/Contribution

= $1752,000/$7

= 250,286 units

3).

Breakeven Point in dollar = Fixed Cost/Contribution margin

= $1752,000/28%

= $ 6257,143

4) Preparing the sketch Breakeven diagram:-

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