Question

College Pak Company produced and sold 60,000 backpacks during the year just ended at an average price of $20 per unit. Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold. Fixed costs amounted to $180,000 for manufacturing and $72,000 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.) Required: 1. Compute College Pak's break-even point in sales dollars for the year. 2. Compute the number of sales units required to earn a net income of $180,000 during the year. 3. College Pak'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 your intermediate calculations.) 4. If College Pak'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. (Round your final answer to the nearest whole dollar amount.) units 1. Break-even point 2. Number of sales 3. Break-even point 4. Selling price

Answer 1

Ans:

Ans:

1.Break-even Point	630,000
2.Number of sales	54000 units
3.Break even Point	700,000
4.Selling Price	$ 21.33

Part 1:

Break Even Point (Dollars) = Fixed Costs/(Selling Price Per Unit - Variable Costs Per Unit)*Selling Price Per Unit

Break Even Point (Dollars) = (180000 + 72000)/(20 - 8 - 4)*20 = $630000

Part 2:

Sales (Units) = (Fixed Cost + Desired Profit)/(Selling Price Per Unit - Variable Costs Per Unit)

Sales (Units) = (180000 + 72000 + 180000)/(20 - 8 - 4) = 54000 Units

Part 3:

Break Even Point (Dollars) = Fixed Costs/(Selling Price Per Unit - Variable Costs Per Unit)*Selling Price Per Unit

Break Even Point (Dollars) = (180000 + 72000)/(20 - 8*(1+.10) - 4)*20 = $700000

Part 4:

Contribution Ratio (Prior to Increase) = (Selling Price - Variable Costs)/Selling Price*100 = (20 - 8 - 4)/20*100 = 40%

Contribution Ratio (After Increase) = (Revised Selling Price - Revised Variable Costs)/Revised Selling Price*100

40% = (Revised Selling Price - 8*(1+.10) - 4)/Revised Selling Price*100

.40*Revised Selling Price = Revised Selling Price - 12.8

Revised Selling Price = 12.8/(1-.40) = $21.33