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In: Accounting

Brihon Corporation produces and sells a single product. Data concerning that product appear below: Selling price...

Brihon Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit $500 Variable expense per unit $350 Fixed expenses $966,000 Required: (You must show your work.)

a. How many units must Brihon sell to break even? (5 pts.)

b. What is Brihon’s breakeven sales in dollars? (5 pts.)

c. If Brihon had total sales of $4,500,000, what is the margin of safety in units _________________ and dollars _______________? (10 pts.)

d. If Brihon desires a profit of $420,000, it would need to sell _______ units resulting in total sales of _______________? (10 pts.)

Solutions

Expert Solution

a) Computation of Break even poinf (In units):

Selling Price per unit (Given)= $500

Variable expense per unit (Given)= $350

Contribution per unit= Selling price per unit - Variable expense per unit

= 500 - 350

= $150

Fixed Expenses (Given)= $966,000

Breakeven Point (In units)= Fixed Expense / Contribution per unit

= 966,000 / 150

= 6,440 units

b ) Computation of Breakeven Point in sales dollars:

Breakeven Point (In dollars)= Breakeven point in units * Selling price per unit

= 6,440 * $500

= $3,220,000

c) Computation of Margin of Safety in Units and Dollars:

Total Sales In dollars (Given)= $4,500,000

Total Sales in units = Total sales in dollars / selling price per unit

= 4,500,000 / 500

= 9,000 units

Margin of Safety in units = Total sales in units - Breakeven sales in units

= 9,000 - 6,440

= 2,560 units

Margin of Safety in dollars= Total sales in dollars - Breakeven sales in dollars

= 4,500,000 - 3,220,000

= 1,280,000

d) Number of units to be sold for target profit of $420,000:

Let X be the required sales units.

Sales - Variable expense - Fixed expense = Profit

(500*x) - (350*x) - 966,000 = 420,000

500x - 350x = 420,000 + 966,000

150x = 1,386,000

x = 1,386,000 / 150

= 9,240 units

Therefore, Number of units to be sold to achieve profit of $420,000 = 9,240 units

Total sales to achieve profit of $420,000 = 9,240 units*selling price per unit

= 9,240 * 500

= $4,620,000

ekkarill92 answered 1 year ago

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