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In: Accounting

Facts relate to Company C: Unit selling price of widget: $250.00 Unit variable cost: $125.00 Total...

Facts relate to Company C:

Unit selling price of widget: $250.00

Unit variable cost: $125.00

Total Fixed Costs: $350,000.00

Units sold during the year: 2,200

Questions to answer:

1. Calculate breakeven number of units

2. Calculate the contribution margin ratio

3. Calculate breakeven amount in dollars

4. What is the linear equation for the total cost curve?

5. The company wishes to target net income of $100,000. How many widgets must the company sell to reach the amount?

6. Calculate the margin of safety in dollars depending on the units sold and. the breakeven dollars.

Fact change: The company decides to purchase a new piece of equipment, fixed costs will increase by 15% and variable costs will decrease by 15%.

Whats the new breakeven number of units?

Fact change: The company's supplier is increasing prices. This will result in additional $10 in variable costs per unit. Because of competition, the company does not want to increase price per unit of the finished widgets.

What is the company's new breakeven in number of units?

What is the company's new breakeven in sales dollars?

Solutions

Expert Solution

selling price 250 550000
less variable cost (125) 275000
contribution 125 275000
less- fixed cost 350000
net profit / loss (75000)

1) breakevent point unit = fixed cost / sales -variable cost

=350000/250-125

=350000/125= 2800 unit

2) Calculate the contribution margin ratio

contribution / sales = 125/250*100 = 50%

3. Calculate breakeven amount in dollars = fixed cost / contribution margin ratio

= 350000/50% = $700000

4.What is the linear equation for the total cost curve?

C(x)=mx+b

C(x)= total cost , mx = m is variable cost and x is unit  , b is fixed cost

lets take breakeven unit and put it into the formula

C(x) = 125*2800+350000= 700000 tptal cost

5. The company wishes to target net income of $100,000. How many widgets must the company sell to reach the amount?

units to earn target profit = fixed cost + target profit / contribution margin ratio

= 350000+100000/50% = $ 900000

sale value = $900000/250 = 3600 unit

6. Calculate the margin of safety in dollars depending on the units sold and. the breakeven dollars.

margin of saftey sale in unit = total sale - breakeven sale

= 3600 unit -2800 unit = 800 unit

=900000-700000= $2000000

b)

Fact change: The company decides to purchase a new piece of equipment, fixed costs will increase by 15% and variable costs will decrease by 15%.

Whats the new breakeven number of units?

fixed cost = $350000+350000*15% = 402500

variable cost = 125-125*15%= 106.25 per unit

1) breakevent point unit = fixed cost / sales -variable cost

=402500/250-106.25

=402500/143.75= 2800 unit

c)

Fact change: The company's supplier is increasing prices. This will result in additional $10 in variable costs per unit. Because of competition, the company does not want to increase price per unit of the finished widgets.

variable cost = $125+$10 = $135

1) breakevent point unit = fixed cost / sales -variable cost

=350000/250-135

=350000/115= 3043 unit

2) Calculate the contribution margin ratio

contribution / sales = 250-135/250*100 = 46%

3. Calculate breakeven amount in dollars = fixed cost / contribution margin ratio

= 350000/46% = $760870

ekkarill92 answered 2 years ago
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