Question

Given the price and cost data shown in the accompanying table for each of the three​ firms, F,​ G, and​ H: 

Firm                                          F          G                                              H

Sale price per unit         $$20.23             $$18.06                                     $$34.42

Variable operating cost per unit 6.91      13.79                                        12.48

Fixed operating cost      41,000             33,000                                     95,000 ​

a. What is the operating breakeven point in units for each​ firm?

b. How would you rank these firms in terms of their​ risk?

Answer 1

Answer a.

Firm F:

Contribution Margin per unit = Sales Price per unit - Variable Operating Cost per unit
Contribution Margin per unit = $20.23 - $6.91
Contribution Margin per unit = $13.32

Operating Breakeven Point in units = Fixed Operating Cost / Contribution Margin per unit
Operating Breakeven Point in units = $41,000 / $13.32
Operating Breakeven Point in units = 3,078 units

Firm G:

Contribution Margin per unit = Sales Price per unit - Variable Operating Cost per unit
Contribution Margin per unit = $18.06 - $13.79
Contribution Margin per unit = $4.27

Operating Breakeven Point in units = Fixed Operating Cost / Contribution Margin per unit
Operating Breakeven Point in units = $33,000 / $4.27
Operating Breakeven Point in units = 7,728 units

Firm H:

Contribution Margin per unit = Sales Price per unit - Variable Operating Cost per unit
Contribution Margin per unit = $34.42 - $12.48
Contribution Margin per unit = $21.94

Operating Breakeven Point in units = Fixed Operating Cost / Contribution Margin per unit
Operating Breakeven Point in units = $95,000 / $21.94
Operating Breakeven Point in units = 4,330 units

Answer b.

Firm G has highest risk and Firm F has lowest risk.