Problem 11-28 Determining the break-even point and preparing a contribution margin income statement Lucent Manufacturing Company...

Problem 11-28 Determining the break-even point and preparing a contribution margin income statement

Lucent Manufacturing Company makes a product that it sells for $75 per unit. The company incurs variable manufacturing costs of $30 per unit. Variable selling expenses are $9 per unit, annual fixed manufacturing costs are $240,000, and fixed selling and administrative costs are $165,000 per year.

CHECK FIGURE

a.11,250 units

Required Determine the break-even point in units and dollars using each of the following approaches:

a. Equation method.

b. Contribution margin per unit.

c. Confirm your results by preparing a contribution margin income statement for the breakeven sales volume.

Solutions

Expert Solution

Selling Price per unit = $75
Variable Manufacturing Cost per unit = $30
Variable Selling Cost per unit = $9
Fixed Manufacturing Cost = $240,000
Fixed Selling and Administrative Cost = $165,000

Answer a.

Equation Method:

Let Breakeven Point in units be X

Sales - Variable Manufacturing Cost - Variable Selling Cost - Fixed Manufacturing Cost - Fixed Selling and Administrative Cost = 0
$75*X - $30*X - $9*X - $240,000 - $165,000 = 0
$36*X - $405,000 = 0
$36*X = $405,000
X = 11,250 units

Break-even point in units = 11,250

Break-even point in dollars = Break-even point in units * Selling Price per unit
Break-even point in dollars = 11,250 * $75
Break-even point in dollars = $843,750

Answer b.

Selling Price per unit = $75

Variable Cost per unit = Variable Manufacturing Cost per unit + Variable Selling Cost per unit
Variable Cost per unit = $30 + $9
Variable Cost per unit = $39

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $75 - $39
Contribution Margin per unit = $36

Fixed Costs = Fixed Manufacturing Cost + Fixed Selling and Administrative Cost
Fixed Costs = $240,000 + $165,000
Fixed Costs = $405,000

Break-even Point in units = Fixed Costs / Contribution Margin per unit
Break-even Point in units = $405,000 / $36
Break-even Point in units = 11,250

Break-even point in dollars = Break-even point in units * Selling Price per unit
Break-even point in dollars = 11,250 * $75
Break-even point in dollars = $843,750

Answer c.

ekkarill92 answered 1 year ago

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