Question

In: Accounting

Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs:...

Given the following information:

Selling Price (per unit): $10,000

Variable Costs (per unit): $7,000

Fixed Costs: $200,000

Required

Each of these are separate situations:

  1. What is the break-even point in total sales in dollars?
  2. How many units need to be sold to make a profit of $20,000?
  3. How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000?
  4. How many units would they need to sell if they wanted to double profit, if the current number of units sold is 200?

Solutions

Expert Solution

( A) What is the break-even point in total sales in dollars $ 666,666.67

Explanation:

1) CM.Per Unit: = $ 10,000 - $ 7000 = $3000

2) CM Ratio: $ 3000 ÷ $ 10,000 = 30%

A) Breakeven Point

= ( Fixed Expense)/CM Ratio

= $ 200,000 ÷ 30%

$ 666,666.67

(B) How many units need to be sold to make a profit of $20,000 73.33 unit

= (Fixed Exp. + Target Income) ÷ CM Per Unit

=( $ 200,000 + $ 20,000) ÷ 3000

= 73.333 Unit

(C) How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000    90 unit

= ( Fixed Exp + Target Income ) ÷ CM per unit

= ( $ 250,000 + 20,000) ÷$ 3000

= 90 Unit

(D) How many units would they need to sell if they wanted to double profit, if the current number of units sold is 200? 333.33 Units

1) Current Profit:

= $3000(200) - $200,000 = $ 400,000

2) Double Profit:

= $ 400,000 ×2 = $ 800,000

3) ( Fixed Exp + Target Income ) ÷ CM per Unit

=( 200,000 + $ 800,000 ) ÷ $ 3000

=333.33 Units


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