Question

Exercise 10-9 Computing Break-Even Plus Target Volume Teton, Inc. sells its only product for $50 per unit. Fixed expenses total $800,000 per year. Variable expenses are $1,000,000 when 40 40,000 units are sold units must be sold to earn a net operating income of $75,000 units How MacBook Air FVO Exercise 10-8 Computing Break-Even The sales price per unit is $13 for the Voyageur Company's only product. The variable cost per unit is $5, In 2016, the company sold 80,000 units, which was 10,000 units above the break-even point 1. Compute the total fixed expenses. (Hint: First compute the contribution margin per unit.) 2. Compute the total variable expense at the break-even volume. MacBook Air 9 8 7

Answer 1

Ans. 10 - 9	Units sales for desired profit   =   (Fixed cost + Target profit) / Contribution margin per unit
		($800,000 + $75,000) / $25
		$875,000 / $25
		35,000 units
	*Calculations:
	Variable cost per unit = Total variable cost / Units sold
		$1,000,000 / 40,000
		$25 per unit
	Contribution margin per unit   =   Selling price per unit - Variable cost per unit
		$50 - $25     =     $25 per unit
Ans. 10 - 8    (1)	Contribution margin per unit   =   Selling price per unit - Variable cost per unit
		$13 - $5     =     $8 per unit
	Break even units sold = Actual units sold - Above units than break even
		80,000 - 10,000   =    70,000 units
	Total fixed expenses =   Break even units sold * Contribution margin per unit
		70,000 * $8
		$560,000
(2)	Break even dollar sales   =   Break even units sold * Selling price per unit
		70,000 * $13
		$910,000
	*In the case of break even, total fixed expenses are equal to total contribution margin.
	So, the Total Contribution margin =   $560,000
	Total variable expenses = Break even dollar sales - Total contribution margin
		$910,000 - $560,000
		$350,000