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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Break even sales

Currently, the unit .selling price of a product is $1,500, the unit variable cost is $1,200, and the total fixed costs are $4,500,000. A proposal is being evaluated to increase the unit selling price to $1,600.

  1. a. Compute the current break-even sales (units).
  2. b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased to the proposed $1,600, and all costs remain constant.

a.

To determine

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

To compute: the current break-even sales (units).

Explanation

Compute the current break-even sales (units).

Fixed cost =$4,500,000

Contribution margin per unit =$300 per unit (1)

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit=$4,500,000$300perunit=15,000units

Working note:

Determine the contribution margin per unit

b.

To determine

To compute: the anticipated break-even sales (units).

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