Question

1. CVP with Activity-Based Costing

   Busy-Bee Baking Company produces a variety of breads. The average price of a loaf of bread is $1. Costs are as follows:

   Cost Driver	Unit Variable Cost	Level of Cost Driver
   Units sold	$0.63	—
   Setups	$293	154
   Maintenance hours	$15	2,440

   Other data:
   Total fixed costs (traditional)	$139,379
   Total fixed costs (ABC)	57,657

   Required:

   1. Compute the break-even point in units using conventional analysis.
   units

   2. Compute the break-even point in units using activity-based analysis.
   units

   3. Suppose that Busy-Bee could reduce the setup cost by $91 per setup and could reduce the number of maintenance hours needed to 1,070. How many units must be sold to break even in this case? Round your answer up to the next higher whole unit (for example, 50.3 units rounds to 51).
   units

Answer 1

(1)

Contribution margin per unit = sales price per unit - variable cost per unit

= $1 - $0.63 = $0.37

Break even point (unit sales) = fixed expenses/contribution margin per unit

= $139379/$0.37

= 376700 units

(2)

Contribution margin per unit = sales price per unit - variable cost per unit

= $1 - $0.63 = $0.37

Break even point (unit sales) = {Fixed Cost+(Setup Cost x No.of setup)+(maintenance cost x No. of
costing hours)}/contribution margin per unit

= ($57657 + $45122 + $36600)/$0.37

= $139379/$0.37

= 376700 units

(3)

Break even point (unit sales) = {$57657 + ($202 x 154) + ($15 x 1070)}/$0.37

= 283284 units