Question

Solomon Company reported the following data regarding the product it sells: Sales price Contribution margin ratio Fixed costs $ 60 20% $384,000 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 $48,000, what must the sales be in dollars? In units? c. If the sales price increases to $64 and variable costs do not change, what is the new break-even point in dollars? In units? a. Break-even point in dollars Break-even point in units b. Sales in dollars Sales in units c. Break-even point in dollars Break-even point in units

Answer 1

Requirement:

a.	Breakeven point in dollars	$ 1,920,000
	Breakeven point in units	32000
b.	Sales in dollars	$ 2,160,000
	Sales in units	$       36,000
c.	Breakeven point in dollars	$ 1,536,000
	Breakeven point in units	24000

Working:

a.

Sales price	$                    60
Contribution margin ratio	20%
Contribution per unit	$                    12
Break even sales:
Fixed cost	$          384,000
Contribution margin ratio	20%
Break even sales	$       1,920,000
Break even units:
Fixed cost	$          384,000
Contribution per unit	12
Break even units	32000

b.

Target profit	$            48,000
Add: Fixed cost	$          384,000
Target contribution	$          432,000
Contribution margin ratio	20%
Target sales	$       2,160,000
Target profit	$            48,000
Add: Fixed cost	$          384,000
Target contribution	$          432,000
Contribution margin per unit	$                    12
Target sales units	$            36,000

c.

Sales price	$                    64
Less: Variable cost per unit [60-12]	$                  (48)
Contribution margin per unit	$                    16
Contribution margin ratio [16/64*100]	25%
Break even sales:
Fixed cost	$          384,000
Contribution margin ratio	25%
Break even sales	$       1,536,000
Break even units:
Fixed cost	384000
Contribution per unit	16
Break even units	24000