Question
In: Accounting
Taku-Tau company has provided you with the following information: Selling price per unit = N$90 Variable...
Taku-Tau company has provided you with the following information:
Selling price per unit = N$90
Variable cost per unit= N$30
Activity driver Cost driver rate Level of activity driver
Set-ups N$ 800 90
Inspection N$ 65 500
Other data:
Total fixed costs (traditional) N$900 000
Total fixed costs (ABC) N$450 000
If the company reduces the setup costs by N$100 per set up and reduces the number of inspections needed to 400, how many units must be sold to break even?
Solutions
Expert Solution
| Contribution Margin per unit |
| Contribution Margin per unit = $90.00 - $30.00 |
| Contribution Margin per unit = $60.00 per unit |
| Total common fixed costs |
| Total common fixed costs = $900,000 - $450,000 |
| Total common fixed costs = $450,000 |
| Activity based fixed costs |
| Activity based fixed costs = [90 x $700] + [400 x $65.00] |
| Activity based fixed costs = $63,000 + $26,000 |
| Activity based fixed costs = $89,000 |
| Total revised fixed costs |
| Total revised fixed costs = Total common fixed costs + Total Activity based costs |
| Total revised fixed costs = $450,000 + $89,000 |
| Total revised fixed costs = $539,000 |
| Break-even number of units |
| Break-even number of units = Total revised fixed costs / Contribution margin per uni |
| Break-even number of units = $539,000 / $60.00 per unit |
| Break-even number of units = 8,983 units |
| Therefore, the Break-even number of units will be 8,983 units |
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