Homework Answers
Answer (a):
Plan 1:
Fixed costs = Fixed manufacturing costs + Fixed selling and administrative costs = 120000 + 180000 = $300,000
Variable cost per unit next year = $4.00
(calculations as below)
Selling price next year same as current year level = $16.00
Contribution margin ratio = (16 - 4) / 16 = 75%
Plan 1 Break-even point in dollar sales = Fixed costs /Contribution margin ratio = 300000 / 75% = $400,000
Plan 1 Break-even point in dollar sales = $400,000
Answer (b):
Plan 2:
Fixed costs = $300,000
Selling price = 16 * (1 +25%) = $20
Contribution margin ratio = (20 - 4) / 20 =80%
Plan 2 Break-even point in dollar sales = Fixed costs /Contribution margin ratio = 300000 / 80% = $375,000
Plan 2 Break-even point in dollar sales = $375,000
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Required: 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b)...
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