Question

In: Accounting

The Boston Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are...

The Boston Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are $9 per unit. Fixed overhead is $450,000 per annum. Variable selling and administrative costs are $3.75 per unit, and fixed selling and administrative costs are $225,000 per annum. The current selling price is $17.25 per unit.

Required (show full working): What is the breakeven point in (i) sales units and (ii) sales dollars?

The Boston Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are $9 per unit. Fixed overhead is $450,000 per annum. Variable selling and administrative costs are $3.75 per unit, and fixed selling and administrative costs are $225,000 per annum. The current selling price is $17.25 per unit.

Required (show full working): How many units must Boston sell to earn a profit of $180,000?

Expert Solution

1)Contribution Per unit =selling price -Total variable cost

= 17.25 - 9 -3.75

= 4.50 per unit

Contribution margin ratio = Contribution per unit /Selling price

= 4.50/17.25

= .260870 or 26.0870%

Total Fixed cost = Fixed overhead + fixed selling and administrative costs

= 450000+225000

= 675000

i)Breakeven point in units =Fixed cost /contribution per unit

= 675000/4.50

= 150000 units

ii)Breakeven point ($) =Fixed cost /contribution margin ratio

= 675000/.26087

= $ 2587496 (approx to 2,587,500)

2)Units to sell to earn target income =[Fixed cost+ Target income ]//contribution per unit

= [675000+180000]/ 4.50

= 855000/4.50

= 190000 units

ekkarill92 answered 2 years ago

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