Question

1) At the break even point of 400 units, variable cost were $400 and fixed costs were $200. how much will the 401st unit sold contribute to operating profit before income taxes?

2) Break even would not change if : a) sales price increases, b) fixed cost decrease, c) sales volume decrease, d) variable cost per unit increase

3) what is break even point in dollars? sales price: $100, variable cost per unit: $40, total fixed cost :$ 120,000

4) Company expects to sell 2500 units next year. they don't want to increase the sales price and the fixed costs cant be change. how much could they afford to pay in variable cost ( per unit) if they want pre-tax operating profit of $40,000? sales price $100, variable cost per unit $40 and total fixed cost $120,000

Answer 1

1. Break even units - 400 units

Then each first 400 units cost

   Variable cost - $1

   Fixed cost - $0.5

Once the 200 fixed cost recovered then the additional units produced contribute $0.50 towards operating profit. The $1 in variable cost still apply to producing additional units

1. Breakeven point does not change , if sales volume decrease

Ans : c

Breakeven point formula = fixed cost/ (selling price per unit – variable cost per unit)

      3.break even point in dollars

     

                 Contribution = $100 - $60 = $40

       Fixed cost (given) =$120,000

     Contribution margin ratio = contribution/ sales

                                                   = 40/100

                                                   =0.4

Break even point in dollars = fixed asset/ pv ratio

                                                 = 120,000/0.4

                                                    = $300,000

4.

Particulars	Amount
profit	40000
fised cost	120000
contribution	160000
(-) sales	-250000
variable cost	90000
variable cost per unit	90000/2500
	$36

They can afford to pay 36 per unit in variable cost.