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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 20, Problem 4BE
Textbook Problem
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Target profit

Beard Company sells a product for $15 per unit. The variable cost is $10 per unit, and fixed costs are $1,750,000. Determine (a) the break-even point in sales units and (b) the sales units required for the company to achieve a target profit of $400,000.

(a)

To determine

Calculate the break-even point in sales units.

Explanation of Solution

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

Determine the break-even point in sales units.

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit=$1,750,000$5(1)=350,000units

Working note (1):

Determine the contribution margin per unit

(b)

To determine

Calculate the sales units if the company desires a target profit of $400,000.

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Chapter 20 Solutions

Financial And Managerial Accounting
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