Question

In: Accounting

The Agate Corporation manufactures and sells two types of bookcases, standard and deluxe. Agate expects the...

The Agate Corporation manufactures and sells two types of bookcases, standard and deluxe. Agate expects the following operating results next year for each type of bookcase:

sales standdard 450000 delux 50000

variable expenses total stndard 180000 delux 20000

Agate expects to have a total of $57,600 in fixed expenses next year. What is Agate's break-even point next year in sales dollars?

Expert Solution

Answer -

Here Contribution/Sales ratio for both products is same i.e. 0.6.

This ratio simply signifies that multiplying it with sales value will give the required contribution value.

So let us assume that our break-even sales for Standard bookcase be x and for Deluxe bookcase be y.

So Total breakeven sales will be x + y (we need to find this value only)

Now Breakeven is that point where profit is zero. Here Contribution - Fixed Cost = 0

So we can say, that at breakeven sales Contribution = Fixed Cost

In the above part we assumed breakeven sales to be x and y and also breakeven ratio as 0.6, using that part here gives us -

0.6x + 0.6y = $57,600
$57,600 is the amount of fixed cost given in the question.

0.6(x+y) = $57,600

Solving this, we get x + y = $96,000

So Breakeven sales will be at $96,000.

Also we can check it as follows -

So our final answer is $96,000 sales value.

Sorry for not pasting excel tables, as it was creating some errors. If you need them please comment, I will try again. Happy to help. Also kindly comment in case of any concerns.

Thank You, Stay Safe.

ekkarill92 answered 2 years ago

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