Question

Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $160 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $262,400, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $96 per 100 yards of XT rope.

1. Estimate Product XT's break-even point in terms of sales units and sales dollars. (1 unit 100 yards) (Do not round intermediate calculations.) Contribution margin per 100 yds. Sales $ 160 Variable cost 96 Less: Contribution margin $ 64 Contribution margin ratio Choose Denominator: Contribution margin ratio Choose Numerator: Contribution margin ratio 0 1(a) Estimate Product XT's break-even point in terms of sales units. (1 unit 100 yards) Choose Numerator: / Choose Denominator: Break-even units Break-even units 1(b) Estimate Product XT's break-even point in terms of sales dollars. Choose Numerator: / Choose Denominator: Break-even dollars Break-even dollars

Answer 1

Contribution Margin ratio

CM per unit	/	Sales per unit	=	Contribution margin ratio
64		160		40%

Breakeven point

Fixed cost	/	Contribution margin per unit	=	Breakeven units
262,400		64		4100

Breakeven dollars

Fixed cost	/	Contribution margin ratio	=	Breakeven dollars
262,400		40%		656,000