Question

I am struggling with the following accounting problem. I need to calculate the following breakeven point in dollars.

Sales 240 units or $1,200,000 ($5.00 per unit), cost of goods sold 784,000, gross profit 416,000, operating expense are 280,000 for selling and 156,000 for administrative expenses.

The analysis indicates 75% of COGS are variable, 42% of selling are variable and 40% of administrative are variable. Those numbers are $588,000, 117,600 and 62,400.

The fixed cost are 25% of COGS, 58% of selling and 60% of administrative those numbers being 196,000, 162,400, 93,600.

There is a proposal to increase units by 25%, add 25 cent increase in unit cost and price would be set at $5.25 per unit. That means the revenue is 1,575,000 with 300,000 units

I have tried several attempts at getting the breakeven dollars with no luck. I need your help.

Thanks

Answer 1

According to your information
Sales(in units)	240000
Selling price	$5
Revenue	1200000
	Variable	Fixed
COGS	588000	196000
Selling	117600	162400
Admin	62400	93600
Total	768000	452000
Variable cost per unit = 768000/240000 = $3.2
If sales is increase by 25% to 300000 units and price is increased to $5.25 and cost per unit is increased by 0.25
Assuming the increase in unit cost is just variable and fixed cost are unchanged.
Sales price	5.25
Variable Cost	3.45
Contribution margin	1.8
Break even sales       =	Fixed cost/contribution margin
=	452000/1.8
=	251111.11 = 251111 units
Break even in dollars =	251111 x 5.25
=	1318332.75
(If I have misunderstood anything please let me know).
Hopefully this will solve your problem.
Please like the solution if satisfied and drop a comment in case of any doubt.
Thankyou