Question

The Maxwell Company manufactures and sells a single product. Price and cost data regarding Maxwell's product and operations are as follows: $25.00 Selling price per unit Variable cost per unit Raw materials Direct Labor Manufacturing Overhead 11.00 5.00 2.50 Fixed Manufacturing Overhead $192,000 $276,000 Annual Fixed Selling and Administration Variable Selling costs per unit sold $1.30 Forecasted Annual Sales Volume (120,000 units) $3,000,000 Required: Show your calculations 1. Maxwell's breakeven point in units is? 2. Maxwell's breakeven point in dollars is? 3. How many units would Maxwell Company have to sell in order to earn $156,000 before taxes? 4. Maxwell Company estimates that its direct labor costs will increase 8 percent next year. How many units will Maxwell have to sell next year to reach breakeven point? 5. If Maxwell Company wants to earn $80,000 after taxes (tax rate is 20%), what is the number of units sold and the total sales (assume direct labor did increase by 8 percent)?

Answer 1

- Break even Point lim units) Formula - fined cost Selling Price - Variable cast (per unit) calculation of (per unit) Fined cost = Fixed Manuf Overhead Annual Fired selling of Adm. = $192000 + $ 276000 = $468000 - Calculation of variable cost = Raw Mat. & Direct Labout 5 Manuf.overhead 2.50 Variable selling cast 1.30 19.80 Per unit - Calculation of break even Point (in units ) = fined cost = $468000 =90000 selling price - Variable cost $25-$19.80 units ( 0 ) (p. ua 2. Breakeven Point (in $) = Breakeven Point & Selling Prices (in units) per unit = 90000 units X 25 = $22500oo noccoOOK

3. on break even Company will carn zero profit 9oooo units. have to sell over Sales ie on bany So, company to calon pho fit 90000 units have et of $ 156000 Contribution per unit = Per unit = selling Price (P.U.)- Variable cost selling Price (2.0.) = $250 $ 19.80 = $ 5.20 Units to earn profit of $156000 = 90000 wnith Break even) + $156000 $ 5.20 = /120000 unith)

4. Calculation of variable cost = Raw Material = 11 Dissect Labour (5 +84.33 5.40 Manuf overhead = 2.50 vad selling cost = 1.30 $20.20 Per unit Calculation of Ereck even point (in units) = fined cost Selling Price - Variable coft w = $468ooo - (P.U.9 (1.0) $ 25- $ 20.20 = 197500 Units) 5. If Co. wants to co. have to earn earn $ 80ovo $80000 = 100% - 20% after taseed, then $100000 before taxes. Calculation of Units to earn profit of $100000 before tanes - Break even units + Delired Profit contribution per unit = 90000 + $100000 - = 110833.333) $25-$20.20 Unith

Answers are:-

1. 90000 units

2. $2250000

3. 120000 units

4. 97500 units

5. 110833.333 units

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