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

ekkarill92 answered 2 years ago
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