Question

CollegePak Company produced and sold 90,000 backpacks during the year just ended at an average price of $50 per unit. Variable manufacturing costs were $22.00 per unit, and variable marketing costs were $8.00 per unit sold. Fixed costs amounted to $560,000 for manufacturing and $232,000 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.)

Required:

1. Compute CollegePak’s break-even point in sales dollars for the year. (Do not round intermediate calculations. Round your final answer up to the nearest whole dollar.)
2. Compute the number of sales units required to earn a net income of $640,000 during the year. (Do not round intermediate calculations. Round your final answer up to nearest whole number.)
3. CollegePak's variable manufacturing costs are expected to increase by 10 percent in the coming year. Compute the firm’s break-even point in sales dollars for the coming year. (Do not round intermediate calculations. Round your final answer up to the nearest whole dollar.)
4. If CollegePak’s variable manufacturing costs do increase by 10 percent, compute the selling price that would yield the same contribution-margin ratio in the coming year. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

a) Contribution margin per unit = 50-30 = 20

Contribution margin ratio = 20/50 = 40%

Break even point in sales dollars = Fixed cost/Contribution margin ratio = 792000/.40 = $1980000

b) Required no of units = (792000+640000)/20 = 71600 Units

c) Variable manufacturing cost = 22*1.1 = 24.20

Contribution margin per unit = 50-32.20= 17.80

Contribution margin ratio = 17.80/50 = 35.6%

Break even sales = 792000/.356 = $2224719

d) Selling price

Contribution margin ratio = (sales-Variable)/Sales

0.40 = (X-32.20)/X

0.4X = X-32.20

-.6X = -32.20

X(Selling price) = 53.67