Question

Blossom Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $50 throughout the country to loyal alumni of over 2,100 schools. Blossom’s variable costs are 43% of sales; fixed costs are $114,000 per month.

Assume that variable costs increase to 45% of the current sales price and fixed costs increase by $12,000 per month. If Blossomwere to raise its sales price by 10% to cover these new costs, what would be the new annual breakeven point in sales dollars? (Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

Answer 1

Answer

Current Sales Price per unit = $50

Current Fixed Cost per month = $114,000

Current Fixed Cost per annum = $114,000 * 12

=$1,368,000

Current Variable Cost per unit = 43% of $50

= $21.50

Current Contribution Margin per unit = Current Sales Price per unit - Current Variable Cost per unit

= $50 - $21.50

= $28.50

Now after assuming that variable costs increase to 45% of the current sales price and fixed cost increase by $12,000 per month and sales price increases by 10% to cover new cost.

New Variable Cost per unit = 45% of Current Sales Price per unit

= 45% of $50

= $22.50

New Fixed Cost per annum = $1,368,000 + ($12,000 * 12)

= $1,368,000 + $144,000

= $1,512,000

New Sales Price per unit = $50 + 10% of $50

= $50 + $5

= $55

New Contribution Margin per unit = New Sales Price per unit - New Variable Cost per unit

= $55 - $22.50

= $32.50

Breakeven Point in dollars = New Fixed Cost per annum / New Contribution Margin per unit * New Selling Price per unit

= $1,512,000 / $32.50 * $55

= $2,558,769.23

= $2,558,769 (rounded off)

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