   Chapter 11, Problem 11.14E

Chapter
Section
Textbook Problem

Break-even analysis The Garden Club of Palm Springs, California, collected recipes from members and published a cookbook entitled Desert Dishes. The book will sell for $40 per copy. The chairperson of the cookbook development committee estimated that the club needed to sell 8.000 hooks to break even on its$40,000 investment. What is the variable cost per unit assumed in the Garden Club's analysis?

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in $is calculated with the help of following formula: Breakeven point (units) = Total Fixed Costs(Sales Price Per unit -Variable Cost per unit) To Calculate: The Variable cost per unit Explanation The Variable cost per unit is calculated as follows:  Selling Price per unit (A)$ 40 Number of breakeven units (B) 8,000 Breakeven sales (C) = (A*B) \$ 320,000

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