Question

2. The Poncho Company sells ponchos at $60 each. The variable cost per unit is 50% of the sales price and the total fixed costs are $300,000. During the summer, the Poncho Company renovated its factory. As a result, its total fixed costs increased by another $96,000 and variable costs decreased to 40% of the sales price. Determine the breakeven point in units and dollars before and after the renovation, using the contribution margin technique. Units Dollars Breakeven before modernization: Breakeven after modernization:

Answer 1

Units 10000 Dollars $ 600,000 Breakeven before modernization Breakeven after modernization 11000 $ 660,000 Breakeven before modernization Selling price Less : variable cost ( $ 60 * 50 %) Contribution Margin per unit $ $ $ 60 (30) 30 Contribution Margin Ratio = Contribution Margin / Selling price *100 $ 30 / $ 60 50% Contribution Margin Ratio = Breakeven Units = Total Fixed Cost / Contribution Margin per unit = $ 300000 / $ 30 10000 Units

Breakeven dollars = Total Fixed cost / Contribution Margin Ratio = $ 300000 / 50 % = $ 600,000 Breakeven after modernization Selling price Less : variable cost ( $ 60 * 40%) Contribution Margin per unit $ $ $ 60 (24) 36 Contribution Margin Ratio = = = Contribution Margin / Selling price *100 $36/ $ 60 Contribution Margin Ratio Breakeven Units = Total Fixed Cost / Contribution Margin per unit = $ 396000 / $ 36 11000 Units

Total Fixed Cost = $ 300000+ $ 96000 = $ 396000 Breakeven dollars = Total Fixed cost / Contribution Margin Ratio = $ 396000 / 60 % = $ 660,000