Question

Compute the break-even point in sales dollars.

a. Assume that fixed costs of Celtics Company are $180,000 per year, variable cost is $12 per unit, and selling price is $30 per unit. Determine the break-even point in sales dollars.

b. Hawks Corporation breaks even when its sales amount to $89,600,000. In 2014, its sales were $14,400,000, and its variable costs amounted to $5,760,000. Determine the amount of its fixed costs.

c. The sales of Niners Corporation last year amounted to $20,000,000, its variable costs were $6,000,000, and its fixed costs were $4,000,000. At what level of sales dollars would the Niners Corporation break even?

d. What would have been the net income of the Niners Corporation in part ( c ), if sales volume had been 10% higher but selling prices had remained unchanged?

e. What would have been the net income of the Niners Corporation in part ( c ), if variable costs had been 10% lower?

f. What would have been the net income of the Niners Corporation in part ( c ), if fixed costs had been 10% lower?

g. Determine the break-even point in sales dollars for the Niners Corporation on the basis of the data given in ( e ) and then in ( f ).

Answer 1

Answer a.

Contribution Margin Ratio = (Selling Price per unit - Variable Cost per unit) / Selling Price per unit
Contribution Margin Ratio = ($30 - $12) / $30
Contribution Margin Ratio = 0.60

Breakeven Sales = Fixed Costs / Contribution Margin Ratio
Breakeven Sales = $180,000 / 0.60
Breakeven Sales = $300,000

Answer b.

Contribution Margin Ratio = (Sales - Variable Cost) / Sales
Contribution Margin Ratio = ($14,400,000 - $5,760,000) / $14,400,000
Contribution Margin Ratio = 0.60

Breakeven Sales = Fixed Costs / Contribution Margin Ratio
$89,600,000 = Fixed Costs / 0.60
Fixed Costs = $53,760,000

Answer c.

Contribution Margin Ratio = (Sales - Variable Cost) / Sales
Contribution Margin Ratio = ($20,000,000 - $6,000,000) / $20,000,000
Contribution Margin Ratio = 0.70

Breakeven Sales = Fixed Costs / Contribution Margin Ratio
Breakeven Sales = $4,000,000 / 0.70
Breakeven Sales = $5,714,285.71

Answer d.

Sales = $20,000,000 + 10% * $20,000,000
Sales = $22,000,000

Variable Cost = $6,000,000 + 10% * $6,000,000
Variable Cost = $6,600,000

Fixed Cost = $4,000,000

Net Income = Sales - Variable Cost - Fixed Cost
Net Income = $22,000,000 - $6,600,000 - $4,000,000
Net Income = $11,400,000

Answer e.

Sales = $20,000,000

Variable Cost = $6,000,000 - 10% * $6,000,000
Variable Cost = $5,400,000

Fixed Cost = $4,000,000

Net Income = Sales - Variable Cost - Fixed Cost
Net Income = $20,000,000 - $5,400,000 - $4,000,000
Net Income = $10,600,000

Answer f.

Sales = $20,000,000
Variable Cost = $6,000,000

Fixed Cost = $4,000,000 - 10% * $4,000,000
Fixed Cost = $3,600,000

Net Income = Sales - Variable Cost - Fixed Cost
Net Income = $20,000,000 - $6,000,000 - $3,600,000
Net Income = $10,400,000

Answer g.

According to Part (e):

Contribution Margin Ratio = (Sales - Variable Cost) / Sales
Contribution Margin Ratio = ($20,000,000 - $5,400,000) / $20,000,000
Contribution Margin Ratio = 0.73

Breakeven Sales = Fixed Costs / Contribution Margin Ratio
Breakeven Sales = $4,000,000 / 0.73
Breakeven Sales = $5,479,452.05

According to Part (f):

Contribution Margin Ratio = (Sales - Variable Cost) / Sales
Contribution Margin Ratio = ($20,000,000 - $6,000,000) / $20,000,000
Contribution Margin Ratio = 0.70

Breakeven Sales = Fixed Costs / Contribution Margin Ratio
Breakeven Sales = $3,600,000 / 0.70
Breakeven Sales = $5,142,857.14