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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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Basic Break-Even Calculations

Suppose that Larimer Company sells a product for $24. Unit costs are as follows:

Chapter 7, Problem 35E, Basic Break-Even Calculations Suppose that Larimer Company sells a product for 24. Unit costs are as

Total fixed factory overhead is $26,500 per year, and total fixed selling and administrative expense is $15,260.

Required:

  1. 1. Calculate the variable cost per unit and the contribution margin per unit.
  2. 2. Calculate the contribution margin ratio and the variable cost ratio.
  3. 3. Calculate the break-even units.
  4. 4. Prepare a contribution margin income statement at the break-even number of units.

1.

To determine

Compute variable cost per unit and contribution margin per unit.

Explanation

Break-Even Analysis:

Break-even analysis refers to the technique that determines the number of units to be sold to cover the cost. Break-even analysis issued to analyze the point where total cost is equal to total revenue.

Use the following formula to compute the variable cost per unit:

Variable Cost Per Unit=Direct Material+Direct Labor+Variable Factory Overhaed+Variable Selling and Administrative Expense

Substitute $4.98 for direct material, $2.10 for direct labor, $1 for variable factory overhead and$2 for variable selling and administrative expense.

Variable Cost Per Unit=$4

2.

To determine

Prepare the contribution margin ratio and the variable cost ratio.

3.

To determine

Compute break-even unit.

4.

To determine

Prepare the contribution margin income statement at $3,000 break-even units.

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