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Sara Pacheco is a sophomore in college and earns a little extra money by making beaded key ring accessories. She sells them on Saturday mornings at the local flea market. Sara charges $5 per unit and has unit variable costs (beads, wire rings, etc.) of $2. Her fixed costs consist of small pliers, a glue gun, etc., which cost her $90. Required: 1. Calculate Sara’s break-even units. 2. Prepare a profit-volume graph for Sara. 3. Prepare a cost-volume-profit graph for Sara.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 16, Problem 17E
Textbook Problem
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Sara Pacheco is a sophomore in college and earns a little extra money by making beaded key ring accessories. She sells them on Saturday mornings at the local flea market. Sara charges $5 per unit and has unit variable costs (beads, wire rings, etc.) of $2. Her fixed costs consist of small pliers, a glue gun, etc., which cost her $90.

Required:

  1. 1. Calculate Sara’s break-even units.
  2. 2. Prepare a profit-volume graph for Sara.
  3. 3. Prepare a cost-volume-profit graph for Sara.

1.

To determine

Ascertain the break-even units.

Explanation of Solution

Break-Even Point: The break-even point refers to the point of sales at which the firm neither earns a profit nor suffers a loss. It is also known as the point of sales or sales value at which the firm recovers the entire cost of fixed and variable nature.

Compute the break-even units:

Break-even in Units =Fixed costContribution Margin

2.

To determine

Represent the profit volume in a graph.

3.

To determine

Represent the cost volume profit in a graph.

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Chapter 16 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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