Question

SHU Inc., manufactures and a product that sells for $1,720 each. During the year, the budgeted fixed manufacturing overhead is estimated to be $1,900,000. Variable costs per unit are $440.

Required:

a.	Determine the break-even point in units. b. Determine the break-even sales dollars
c.	Determine the number of units that must be sold to earn $300,000 in profit before taxes.

Answer 1

Answer of Part a:

Selling price per unit = $1,720

Variable Cost per unit = $440

Contribution Margin per unit = Selling price per unit – Variable Cost per unit
Contribution Margin per unit = $1,720 - $440
Contribution Margin per unit = $1,280

Break Even Point in Units = Fixed Cost / Contribution Margin per unit
Break Even Point in Units = $1,900,000 / $1,280
Break Even Point in Units = 1,484

Answer of Part b:

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $1,280 / $1,720
Contribution Margin Ratio = 0.7442 or 74.42%

Break Even Sales Dollars = Fixed Cost / Contribution Margin Ratio
Break Even Sales Dollars = $1,900,000 / 0.7442
Break Even Sales Dollars = $2,553,077.13

Answer of Part c:

No. of Units = (Fixed Cost + Target Profit) / Contribution Margin per unit
No. of Units = ($1,900,000 + $300,000) / $1,280
No. of Units = $2,200,000 / $1,280
No .of Units = 1,719