Question

need E

= Use this income statement to answer the questions that follow. $6,200 3.968 2.232 Sales ($50 per unit) Less: Cost of goods sold ($32 per unit) Gross margin Less operating expenses: Salaries Advertising Shipping ($4 per unit) Operating Income $686 378 496 1,560 $ 672 (a) ✓ Your answer is correct. What is the variable cost per unit? Variable cost per unit $ 36

Answer 1

Answer to part e)

Given in the question that,

Sales = $6200 ( $50 per unit )

Cost of Goods Sold = $3968 ( $32 per unit )

Gross Margin = $2232

Salaries = $686

Advertising = $378

Shipping = $496 ($4 per unit)

Operating Income = $672

Also, from Parts a) to d),

We know that,

Variable Cost per unit = $36

Total Fixed Expense = $1064

Contribution Margin per unit = $14

Contribution Margin ratio = 28%

We need to find the Breakeven point in units and also in dollars.

Breakeven is the point of sales where at that point of sales, there is no profit and no loss. In other words, Sales minus All the costs will be zero.

We know that,

Breakeven point in Units =

Fixed Cost / (Sales price in units - Variable Cost in units)

or

Fixed Cost / (Contribution Margin Per Unit)

On substituting the values in the equation, we get

Breakeven Point in Units = 1064 / (50 - 36) or 1064 / 14

= 76 units

Now,

We also know that,

Breakeven Point in Dollars = Fixed Cost / Gross Margin %

On substituting the values, we get

Breakeven Point in Dollars = 1064 / 28%

= $3800

This means that when 76 units is sold or the sale value is $3800, there will be no profit or no loss. Let us confirm it

When 76 units are sold,

Sales = 76 * 50 = $3800

Variable Cost (Cost of goods and Shipping Cost) = 76 * 36 = $2736

Fixed Cost = $1064

So, Sales - Variable Cost - Fixed Cost = 3800 - 2736 - 1064 = 0 as we expected. Hence, we have confirmed the Breakeven Point.

So the answer to e) is

Breakeven point in units = 76 units

Breakeven point in dollars = $3800