Question

Franklin Company reported the following data regarding the product it sells: Sales price Contribution margin ratio Fixed costs $ 60 10% $126,000 Required Use the contribution margin ratio approach and consider each requirement separately. E a. What is the break-even point in dollars? In units? b. To obtain a profit of $42,000, what must the sales be in dollars? In units? E c. If the sales price increases to $72 and variable costs do not change, what is the new break-even point in dollars? In units? a. Break-even point in dollars Break-even point in units Sales in dollars Sales in units Break-even point in dollars Break-even point in units

Answer 1

a BEP in dollars=FC/CM ratio 126000/0.1 BEP in units=FC/CM per unit 126000/(60*0.1) b Required sales in dollar=(Profit+FC)/CM ratio (42000+126000/0.10 Required sales in units=(Profit+FC)/CM per unit (42000+126000)/(60*0.10) 1260000 21000 1680000 28000 54 18 Current VC per unit=SP*(1-CM ratio) 60*(1-0.1) Revised CM per unit 72-54 Revised CM ratio=CM/SP 18/72 0.25 BEP in dollars=FC/CM ratio BEP in units EFC/CM per unit 126000/0.25 126000/18 504000 7000