Question

Ritchie Manufacturing Company makes a product that it sells for $190 per unit. The company incurs variable manufacturing costs of $96 per unit. Variable selling expenses are $18 per unit, annual fixed manufacturing costs are $462,000, and fixed selling and administrative costs are $260,000 per year.

Required

Determine the break-even point in units and dollars using each of the following approaches:

1. Use the equation method.

2. Use the contribution margin per unit approach.

3. Prepare a contribution margin income statement for the break-even sales volume.

Determine the break-even point in units and dollars and the contribution margin ratio approach. Break-even point in units a. Break-even point in dollars b. Contribution margin per unit Break-even point in units Break-even point in dollars

Answer 1

Contribution margin per unit = $190 - $96 - $18 = $76

Breakeven point in units = ($462,000 + $260,000) / $76 = 9,500 units

Breakeven point in dollars = [($462,000 + $260,000) / $76] X $190 = $1,805,000

a.	Break-even point in units	9,500
	Break-even point in dollars	$1,805,000
b.	Contribution margin per unit	$76
	Break-even point in units	9,500
	Break-even point in dollars	$1,805,000

Contribution margin income statement

Sales (9,500 X $190)	$1,805,000
Variable cost (9,500 X [$96 + $18])	($1,083,000)
Contribution margin	$722,000
Fixed cost ($462,000 + $260,000)	($722,000)
Net operating income	$0