Question

Vernon Company reported the following data regarding the product it sells: Sales price Contribution margin ratio Fixed costs 60 10% $216,000 Required Use the contribution margin ratio approach and consider each requirement separately. a. What is the break-even point in dollars? In units? b. To obtain a profit of $54,000, what must the sales be in dollars? In units? C. If the sales price increases to $72 and variable costs do not change, what is the new break- even point in dollars? In units? Break-even point in dollars Break-even point in units b. Sales in dollars Sales in units Break-even point in dollars Break-even point in units

Answer 1

Break even point in dollars = Fixed cost/Contribution margin ratio = 216,000/10% = 2,160,000

Breakeven point in units = 2,160,000/60 = 36,000

Sales in dollars needed = (Fixed costs+Target profit) /CM ratio = (216,000+54,000)/10% = 2,700,000

Sales in units needed = 2,700,000/60 = 45,000

New sales price = 72 Variable cost = 60 *. (100-10)% = 54 New contribution margin ratio = (72-54)/72 = 25% = 216,000/25% = 864,000

Breakeven point in units = 864,000/72 = 12,000