In: Accounting
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 $180,000?
1)Contribution Per unit =selling price -Total variable cost
= 17.25 - 9 -3.75
= 4.50 per unit
Contribution margin ratio = Contribution per unit /Selling price
= 4.50/17.25
= .260870 or 26.0870%
Total Fixed cost = Fixed overhead + fixed selling and administrative costs
= 450000+225000
= 675000
i)Breakeven point in units =Fixed cost /contribution per unit
= 675000/4.50
= 150000 units
ii)Breakeven point ($) =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