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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Break-Even Point in Units

Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense).

Required:

  1. 1. Calculate the break-even pairs of shoes.
  2. 2. Check your answer by preparing a contribution margin income statement based on the break-even units.

1.

To determine

Compute break-even pairs of shoes.

Explanation

Break-Even Point:

The point or situation where the amount of total cost is equivalent to total revenue is known as the break-even point. It is the point where there is no loss or no profit.

Use the following formula to calculate break-even pairs of shoes:

Break-even pairs of shoes=Fixed costsContribution margin per unit1

Substitute $78,000 for fixed costs and $39 for contribution margin per unit in the above formula.

Break-even pairs of shoes=$78,000$39=2,000 units

Therefore, the break-even pairs of shoes are 2,000 units

2.

To determine

Construct a contribution margin income statement.

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