Question

In 2017, X Company had the following selling price and per-unit variable cost information:

Selling price			$172
Variable manufacuting costs			85
Variable selling and administrative costs			22

In 2017, total fixed costs were $643,000.

In 2018, there are only two expected changes. Direct material costs are expected to decrease by $8 per unit, and fixed selling and administrative costs are expected to increase by $10,000. What must unit sales be in order for X Company to break even in 2018?

Answer 1

PARTICULARS	2017 (in $)	2018(in $)
Selling price    (a)	172	172
Variable cost :-
Variable manufacturing cost	85	77
Variable selling &            administrative costs	22	22
Total variable cost (b)	107	99
Contribution per unit ( a)- (b) = (c)	65	73
Fixed cost (d)	643,000	653,000
Break even sales   (d) / (c)	9,892	8945

NOTES:-

1. It is given that in 2018 direct material cost reduces by $8 per unit

Hence variable manufacturing cost (in 2018) = $ 85 - $ 8 = $ 77

2. Also fixed cost increases by $ 10,000

Hence fixed cost in 2018 = $ 643,000 + $ 10,000 =$ 653,000

3. Total variable cost = variable manufacturing cost + variable selling & administrative cost

4. Contribution per unit = selling price – total variable cost

5. Break even sales(in units ) = fixed cost / contribution per unit