Question

Question 4 Iris Manufacturing Inc. has provided you with the following CVP income statement Sales (5,300 units) $1,060,000 $200 per unit Variable costs Contribution margin 371,000 $70 per unit Fixed costs Operating income 689,000 130 per unit 310,800 60,200 Management is considering the following course of action to increase operating income: reduce the selling price by 20%, with no changes to unit variable costs or fixed costs. Management feels that this change will increase unit sales by 30%. Calculate the break-even point in units and sales dollars with no change in sales. (Round units to 0 decimal places,e.g.5,275 and dollar amount to 2 decimal places,e.g.15.25.) In units In dollars Break-even point LINK TO TEXT Calculate the break-even point In units and sales dollars with the proposed change in sales price. (Round units to 0 decimal places, e.g. 5,275 and dollar amount to 2 decimal places, e.g. 15.25.) In units In dollars Break-even point

Answer 1

a) Calculate break even point in unit and in dollars : Selling price = 200 Contribution margin per unit = 200-130 = 70 Contribution margin ratio = 70/200*100=35% In Units In Dollars Break even point 310800/70 = 4440 Units =310800/35% = $888.229 b) Calculate break even point in unit and in dollars with the proposed change in sales price New Selling price = 200-(200*20%)=160 Contribution margin per unit = 160-130 = 30 Contribution margin ratio = 30/160*100=18.75% In Units In Dollars Break even point 310800/30 = 10360 Units =310800/18.75% = $1657600