Question

Required information The following information applies to the questions displayed below This year Burchard Company sold 38,000 units of its only product for $16.60 per unit. Manufacturing and selling the product required $123,000 of fixed manufacturing costs and $183,0000 of fixed selling and administrative costs. Its per unit variable costs follow. Material $4.30 Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs 3.30 0.43 0.23 Next year the company will use new material, which will reduce material costs by 60 % and direct labor costs by 40 % and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 43,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 20 %. This plan will decrease unit sales volume by 10 % . Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same. Required: 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.)

Answer 1

1.

# Sales	38000			38000	34200
Per unit cost	16.6			16.6	19.92
Total Sales	630800			630800	681264
Output Capacity	43000			-	-
Fixed Mfg Cost	123000			123000	123000
Fixed Selling Cost	183000			183000	183000
Variable Cost	Current Cost	Revised Cost
Material	4.3	1.72		65360	58824
Direct Labor	3.3	1.98		75240	67716
Var Overhead	0.43	0.43		16340	14706
Var S&A Cost	0.23	0.23		8740	7866
Total	8.26	4.36		165680	149112
				Income
				159120	226152
				Per unit Income
				4.187368421	6.612631579

Break even point is when Total Cost = Sales

Sales = Fixed Cost + N*per unit variable cost

N * per unit sales price = Fixed Cost + N * per unit cost

N = Fixed Cost / (per unit sales price - per unit cost price)

N = 25000 as per Plan 1

N = 19665 as per Plan 2

2)

	Plan 1	Plan 2
# of units	38000	34200
Per unit cost	16.6	19.92
Total Sales	630800	681264
Total Fixed Cost	306000	306000
Total Var Cost	165680	149112
Income before taxes	159120	226152
Tax @ 30%	47736	67845.6
Net Income	111384	158306.4