Question

29. Webber, Inc. developed the following information for its product: Per Unit Sales price $90 Variable cost 63 Contribution margin $27 Total fixed costs $1.215.000 Instructions Answer the following independent questions and show computations using the contribution margin technique to support your answers. 1. How many units must be sold to break even? 2. What is the total sales that must be generated for the company to earn a profit of $60,000? 3. If the company is presently selling 50,000 units, but plans to spend an additional $108,000 on an advertising program, how many additional units must the company sell to earn the same net income it is now making? 4. Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $236,250.

Answer 1

1. Break even point ( in units) = Fixed cost ÷ (selling price- variable cost)

= 1,215,000÷(90-63) = 1,215,000÷27

=45,000 units

2. For earning a profit of $60,000 total sales must be

Units to be sold = 47,222

Sales (47,222×90)	4,249,980
(-) variable cost( 47,222×63)	(2,974,986)
Contribution	1,274,994
(-) fixed cost	(1,215,000)
Net income	$59,994

3. Company plans to spend additionally $108,000 on advertising program, additional unist to sell to earn same net income

Sales (51,222×90)	4,609,980
(-) variable cost (51,222×63)	(3,226,986)
Contribution	1,382,994
(-) fixed cost	(1,215,000)
(-) advertising program	(108,000)
Net income	59,994

To earn a net income of same as above, we have to sale 1,222 additional units

4.

Sale price increased by 20% then new sales price= 90+20%= $108

Variable cost increased by 10% then new variable cost= 63+10%= $69.3

Fixed cost increased by $236,250 then new fixed cost is 1,215,000+236,250=$1,451,250.

New break even point in units = Fixed cost ÷(sale price- variable cost)

= 1,451,250÷(108-69.3)

=1,451,250÷38.7

=37,500 units

Note : i consider the net income of $60,000 to the nearest units calculation amount of $59,994.

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All the best

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