Question

For the coming year, Belton Company estimates fixed costs of $60,000, the unit variable cost of $25, and the unit
selling price of $50.

a. Determine the break-even point in units of sales.
 
b. Determine the unit sales required to realize operating income of $100,000.
 
c. Determine the probable operating income if sales total $400,000.

Answer 1

Solution a:

CM per unit = $50 - $25 = $25 per unit

Break even point in units = Fixed costs / CM per unit = $60,000 / $25 = 2400 units

Solution b:

unit sales required to realize operating income of $100,000 = (Fixed costs + Operating income) / CM per unit

= ($60,000 + $100,000) / $25 = 6400 units

Solution c:

CM ratio = $25/ $50 = 50%

Probable operating income = Contribution margin - Fixed costs = ($400,000*50%) - $60,000 = $140,000