Question

Chapter 7 Mastery

Therrell Corporation has two divisions: Bulb Division and Seed Division. The following report is for the most recent operating period:

	Bulb Division		Seed Division
Sales	$	297,000	$	198,000
Variable expenses	$	77,220	$	41,580
Traceable fixed expenses	$	115,080	$	81,180
Common fixed expense	$	28,320	$	18,880

The common fixed expenses have been allocated to the divisions on the basis of sales.

Required:

a. What is the Bulb Division’s break-even in sales dollars?

b. What is the Seed Division’s break-even in sales dollars?

c. What is the company’s overall break-even in sales dollars?

(For all requirements, do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Answer 1

Answer:

a. What is the Bulb Division’s break-even in sales dollars?

Breakeven point in sales

= Total Fixed Expenses / Contribution margin ratio

For finding out the breakeven point we need to calculate the Contribution margin ratio

Contribution margin ratio

= Contribution margin / sales

Now we will find the Bulb Division’s break-even in sales dollars as under

	Bulb division
Sales	2,97,000
Less: Variable cost	77,220
Contribution margin	2,19,780
Contribution margin ratio	$219,780/$297,000*100 = 74%
Break even point in sales dollar	$115,080/74% =$155,514

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b. What is the Seed Division’s break-even in sales dollars?

	Seed division
Sales	198000
Less: Variable cost	41580
Contribution margin	1,56,420
Contribution margin ratio	$156,420/$198,000*100 = 79%
Break even point in sales dollar	$81,180/79% = $102,759

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c. What is the company’s overall break-even in sales dollars?

	Total company
Sales	4,95,000
Less: Variable cost	1,18,800
Contribution margin	3,76,200
Contribution margin ratio	$376,200/$495,000*100 = 76%
Break even point in sales dollar	($115,080+81180+28320+18880)/76%=$320,342