Question

A manufacturer of major appliances provides the following information about the operations of the refrigeration division:

Fixed costs per period are $26 880; variable costs per unit are $360; selling price per unit is $640; and capacity is 150 units.

1. Compute

   1. the contribution margin;

   2. the contribution rate.

2. Compute the break-even point

   1. in units;

   2. as a percent of capacity;

   3. in sales dollars.

3. Determine the break-even point in sales dollars if fixed costs are increased to $32 200.

4. Determine the break-even point as a percent of capacity if fixed costs are reduced to $23 808, while variable costs are increased to 60% of sales.

Answer 1

Answer:

1

the contribution margin

selling price per unit	640
Less: Variable costs per unit	360
Contribution margin per unit	280

the contribution rate.

contribution rate.

= Contribution margin per unit / sales per unit

=280/640

=43.75%

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Compute the break-even point

in units;

the break-even point in units

=Fixed cost / Contribution margin per unit

=26,880 / 280

=96 units

as a percent of capacity;

=Break even point in units / total capacity

=96 /150

=64%

in sales dollars.

=Fixed cost / Contribution margin rate

=26,880 / 43.75%

=$61,440

____________________________________________________________

Determine the break-even point in sales dollars if fixed costs are increased to $32 200.

break-even point in sales dollars if fixed costs are increased to $32 200

=Fixed cost / Contribution margin rate

=32,200 / 43.75%

=$61,440

=$73,600

________________________________________________________________

Determine the break-even point as a percent of capacity if fixed costs are reduced to $23 808, while variable costs are increased to 60% of sales.

selling price per unit	640
Less: Variable costs per unit(640*60%)	384
Contribution margin per unit	256

the break-even point in units

=Fixed cost / Contribution margin per unit

=23808 / 256

=93 units

as a percent of capacity;

=Break even point in units / total capacity

=93 /150

=62%