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For a company with one product, describe the equation used to calculate the break-even point or...

For a company with one product, describe the equation used to calculate the break-even point or target profit in (a) units, and (b) sales dollars.

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Answer #1

(a)-The break-even point or target profit in units

The break-even point or target profit in units is calculated by using the following formula

The break-even point or target profit in units = [Total fixed costs + Target profit] / Contribution margin per unit

(b)-The break-even point or target profit in sales dollars

The break-even point or target profit in sales dollars calculated by using the following formula

The break-even point or target profit in sales dollars = [Total fixed costs + Target profit] / Contribution margin ratio

Contribution margin per unit

Contribution margin per unit = Selling price per unit – Variable cost per unit

Contribution margin ratio

Contribution margin ratio = Contribution margin per unit / Selling price per unit

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