Question

Check my work Required information The following information applies to the questions displayed below.) Part 1 of 2 This year Burchard Company sold 29,000 units of its only product for $19.20 per unit. Manufacturing and selling the product required $114,000 of fixed manufacturing costs and $174,000 of fixed selling and administrative costs. Its per unit variable costs follow. points Skloped $3,40 2.10 Material Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative casts ebook References Next year the company will use a new material, which will reduce material costs by 70% and direct labor costs by 30% and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 34,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 30%. This plan will decrease unit sales volume by 15%. Under both plans, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same. Required: 1. Compute the break-even point in dollar sales for (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.)
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Answer 1

new material cost per unit = 3.40-70%

= $ 1.02

new direct labor cost per unit = 2.40 - 30%

= $1.68 per unit

total variable costs under use of new material

= 1.02 + 1.68 + 0.34 + 0.14

= $ 3.18 per unit

Selling price per unit

under paln 1 = $ 19.20

under plan - 2 = 19.2+30%

= $ 24.96

contribution margin Ratio = ( Sales- Variable cost ) * 100 / sales

under plan 1 = (( 19.2 - 3.18) / 19.2 )*100

= 83.4375 %

= 83.44 %

under plan 2

= (( 24.96 - 3.18 ) / 24.96 ) * 100

= 87.259615%

= 87.26%

total fixed costs = 114000+174000

= 288000

Break even point in dollars = fixed cost /Contribution margin ratio

under plan 1 = 288000 / 83.44%

= $ 345158.19

under plan 2

= 288000 / 87.26 %

= 330048.13

under plan 2 total no of units sold = 29000 - 15%

= 24650 units

	Marginal Income statement for year
		plan 1	plan 2
	Particulars	units	price per unit	Total	units	price per unit	Total
	sales	29000	19.2	556800	24650	24.96	615264
less ;	variable cost	29000	3.18	92220	24650	3.18	78387
	material - 1.02
	labor cost 1.68
	variable oh - 0.34
	selling oh - 0.14	3.18
	contribution margin			464580			536877
less ;	Fixed cost			288000			288000
	Net operating income			176580			248877