Question

Use the following information to answer Questions 8,9,10 Keliable Racket Company manufactures tennis rackets. During a given year, fixed costs are expected to be $150,000. Each racket requires 310 of variable cost to produce and will be sold to retail outlets for $15. What is the breakeven point in dollars? 2 $300,000 6 $450,000 c. $150,000 d. $90,000 c. $675,000 How many rackets must be sold to cam an annual profit of $20,000? a 4.000 b. 14.000 c. 24,000 d. 34.000 c. 44,000 If 25,000 rackets are sold in a given year and fixed costs are increased to $160,000, the overall profit or loss is $25,000 profit. b. $25,000 loss c. $35,000 loss d $45,000 loss. e. $45.000 profit

Answer 1

Fixed cost = $150,000

Selling price = $15

Variable cost = $10.

Contribution Margin = $5

Contribution Margin ratio = $5/ $15 = 0.3333

a) Break even point in dollars = Fixed cost / contribution margin ratio

= $150,000 / 0.3333 = $450,000

b) Desired profit = $20,000

Desired sales units = (Fixed cost + Desired profit) / contribution margin

= ($150,000 + $20,000) / 5

= 34,000 units

c) Overall profit at 25,000 units and revised fixed cost = $160,000 is

(25,000 units * $5) - $160,000

= - $35,000

35,000 loss