Polk Company developed the following information for its product: Per unit Sales price $90 Variable cost...

Polk Company developed the following information for its product: Per unit Sales price $90 Variable cost 63 Contribution margin $27 Total fixed costs $1,080,000 Instructions Answer the following independent questions and show computations using the contribution margin technique to support your answers. 1. How many units must be sold to break even? 2. What is the total sales that must be generated for the company to earn a profit of $60,000? 3. If the company is presently selling 45,000 units, but plans to spend an additional $108,000 on an advertising program, how many additional units must the company sell to earn the same net income it is now making? 4. Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $210,000

Expert Solution

1. Fixed Costs ÷ (Price - Variable Costs) = Breakeven Point in Units

therefore break even points in units = $1080000/$27 = 40000 units.

2.Total sales that must be generated for the company to earn a profit of $60,000

unit sales = total fixed expenses+desired profit / contribution margin per unit

=1080000+60000 / 27= 42222 units

3. current profit at 45000 units = 45000*27 (contribution) - 1080000 (total fixed cost) = $135000 (profit=contribution-fixed expenses)

so to maintain current profit and by increasing fixed expenses by $108000 , company has tio increase its sales by 4000 units , because (profit=contribution-fixed expenses) so , $135000= x- (1080000+108000), by solving above equation we get contribution i.e.1323000 which is divided by $27 getting value of sales i.e. 49000 units

4.new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $210,000

break even point= fixed cost/ contribution

new sale price = 90+20% = $108

new unit variable cost = 63 + 10%= $69.3

new fixed cost =1080000+210000 =$1290000

contribution = 108-69.3 = $38.7

break even point= 1290000/38.7 = 33333 units

ekkarill92 answered 2 years ago

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