Question

Problem 11-28 Determining the break-even point and preparing a contribution margin income statement LO 11-5 Ritchie Manufacturing Company makes a product that it sells for $140 per unit. The company Incurs variable manufacturing costs of $78 per unit. Variable selling expenses are $13 per unit, annual fixed manufacturing costs are $350,000, and fixed selling and administrative costs are $149,800 per year. Required Determine the break-even point in units and dollars using each of the following approaches: a. Use the equation method. b. Use the contribution margin per unit approach c. Prepare a contribution margin income statement for the break-even sales volume.

Answer 1

Working: Selling Price per unit Variale cost per unit Contribution Margin per unit 140.00 91.00 49.00 (78+13) $ Total Fixed Cost $ 499,800 (350000+149800) Breakeven point using equation method Breakeven is a point where there is no profit no loss, which means Sales minus all expenses is equal to zero. Let 'X' be number of units at breakeven. Sales - Variable cost - Fixed cost = Profit 140X - 91 X - 499800 = 0 49X = 499800 X = 499800 /49 X = 10200 Break even units = 10200 Break even dollar = units x sales per unit = 10200 x 140 = 1428000 b Breakeven point using contribution margin per unit Breakeven point units = Total Fixed cost Contribution margin per unit Breakeven point units = $ $ 499,800 49.00 Breakeven point units = 10200 Units Break even dollar = units x sales per unit = 10200 x 140 = 1428000 Contribution margin Income Statement Less (10200 x 91) Sales Total Variable Cost Total Contribution Margin Total Fixed Cost Operating Income $ $ $ $ 1,428,000 928,200 499,800 499,800 Less