Question

Ritchie Manufacturing Company makes a product that it sells for $160 per unit. The company incurs variable manufacturing costs of $73 per unit. Variable selling expenses are $15 per unit, annual fixed manufacturing costs are $490,000, and fixed selling and E administrative costs are $258,800 per year. Required Determine the break-even point in units and dollars using each of the following approaches: E a. Use the equation method. b. Use the contribution margin per unit approach. c. Use the contribution margin ratio approach. d. Prepare a contribution margin income statement for the break-even sales volume.

Answer 1

160 748800 160 88 Selling Price Per unit Varaibel Expense Per unit (73+15) Fixed Expenses (490000+258800) Compute the CM ratio and Varaible Expense ratio Selling Price Per unit Varaibel Expense Per unit (73+15) Contribution Margin per unit (Selling Price - Varible Cost) CM Ratio =( CM/Selling Price) Equation Method Break Even in Unit Sales Fixed Cost / selling price - Variablecost) Break Even in Dollar sales = ( selling Price* BEP Units) CM Per Units Method Method - Contribution Margin per unit (Selling Price - Varible Cost) Break Even in Unit Sales =( Fixed Cost / CM Per unit) Break Even in Dollar sales =( Units "Selling price) 45% 10400 Units 1664000 Dollars 72 10400 Units 1664000 Dollars Contibution Income Statement at Break Even Point Total Selling Price (10400*160) 1664000 Varaible Cost (10400*88) 915200 Contribution Margin 748800 Fixed cost 748800 Net operating income