Question

Soon to be famous, Texas Smokers, a locally owned business and manufacture of barbeque smokers wants to calculate its breakeven point for its business. Its Classic smoker sells for $335 with a unit variable cost of $235. The fixed cost is $57,000.

- What is the unit contribution margin ($)?

-What is the breakeven volume?

-What is the breakeven revenue?

-If 700 units built, what is the profit?

- If the price is raised by $50, what is the new breakeven volume?

- If the variable cost per unit is raised by $25, what is the new breakeven volume? Use the original selling price.

Answer 1

1. Unit Contribution Margin = Sales Price per Unit - Variable Cost per Unit = $335 - $235 = $100

2. Break-Even Point in Units = Fixed Costs/Unit Contribution Margin = $57,000/$100 = 570 units

3. Break-Even Revenue = Break-Even Point in units x Sales Price per Unit = 570 units x $335 = $190,950

4. Profit = Sales - Variable Cost - Fixed Cost

If 700 units built,

Profit = (700 Units x $335) - (700 Units x $235) - $57,000 = $234,500 - $164,500 - $57000 = $13,000

5. Break-Even Point in Units = Fixed Costs/Unit Contribution Margin

If sales price per unit is increased by $50 then new sales price per unit is $385 ($335 + $50).

Unit Contribution Margin = Sales Price per Unit - Variable Cost per Unit

New Contribution Margin per Unit = $385 - $235 = $150

New Break-Even Point in Units = $57,000/$150 = 380 units

6. Break-Even Point in Units = Fixed Costs/Unit Contribution Margin

If variable cost per unit is increased by $25 then new variabl cost per unit is $260 ($235 + $25).

Unit Contribution Margin = Sales Price per Unit - Variable Cost per Unit

New Contribution Margin per Unit = $335 - $260 = $75

New Break-Even Point in Units = $57,000/$75 = 760 units