Question

Ross Co sells recreational equipment. One of the company’s products is a water purifier that sells for $55 per unit. Variable expenses are $30 per purifier and fixed expenses associated with the purifier total $100,000 per month. CVP: Ross Co sells recreational equipment. One of the company’s products is a water purifier that sells for $55 per unit. Variable expenses are $30 per purifier and fixed expenses associated with the purifier total $100,000 per month.

Put your final response next to question number and work below.

1.__________ Compute break-even in UNITS per month

2.__________ Compute break-even in SALES DOLLARS per month

3.___________How many purifiers would need to be sold to reach a target operating profit of $10,000 per month? 4. If variable expenses per purifier decrease as a percentage (or as a proportion) of the selling price, will it results in a higher or lower break-even point? Briefly explain why.

Answer 1

Answer:-1)- Break even in units= 4000 units

2)- Break even in dollars = $220022

3) Units sold to achieve target profit = (Fixed costs+ Desired profit)/ Contribution margin per unit

=($100000+$10000)/$25 per unit =4400 units

4)- If variable expenses per purifier decrease as a percentage (or as a proportion) of the selling price, will it results lower break even point. If variable expenses per unit will decrease then contribution margin automatically increase and more fixed cost will cover, hence company achieve low break even point and more profit will be generate.

Explanation:-

Contribution margin per unit= Selling price per unit - Variable cost per unit

=$55 per unit -$30 per unit

=$25 per unit

Contribution margin ratio= (Contribution margin per unit/ Selling price per unit)*100

= ($25/$55)*100 =45.45%

Units sales to Break even =Fixed costs/ Contribution margin per unit

=$100000/ $25 per unit =4000 units  

Dollar sales to Break even =Fixed costs/ Contribution margin ratio

=$100000/45.45% = $220022