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High-Low Cost Estimation and Profit Planning Comparative 2007 and 2008 income statements for Dakota Products Inc....

High-Low Cost Estimation and Profit Planning Comparative 2007 and 2008 income statements for Dakota Products Inc. follow: DAKOTA PRODUCTS INC. Comparative Income Statements For Years Ending December 31, 2007 and 2008 2007 2008 Unit sales 5,000 8,000 Sales revenue $60,000 $96,000 Expenses (64,000) (76,000) Profit (loss) $(4,000) $20,000 (a) Determine the break-even point in units. Answer 0 units (b) Determine the unit sales volume required to earn a profit of $5,000. Answer 0

Solutions

Expert Solution

(a) Determine the break-even point in units

5,500 Units

(b) Determine the unit sales volume required to earn a profit of $5,000

6,125 units

Working:

Step-1:Calculation of Variable cost per unit, Total Fixed Cost and Selling Price per unit
a. As per high-low method,
Variable cost per unit = (Total cost at highest level-Total cost at lowest level)/(Highest level-Lowest Level)
= (76000-64000)/(8000-5000)
= $            4.00
b. Now either at highest level of 8000 units or
or lowest level of 5000 units
Total cost $       76,000 $       64,000
Less:Variable cost $       32,000 $       20,000
(8000*4.00) (5000*4.00)
Fixed Cost $       44,000 $       44,000
c. Sales Price per unit = Total Sales /Total Units sold
So,
Sales Price per unit of:
2007 $       60,000 / 5000 = $    12.00
2008 $       96,000 / 8000 = $    12.00
Step-2:Calculation of Break even point in units sales
Break even point in units sales = Fixed Cost/Contribution Margin per unit
= $ 44,000 / $            8.00
=         5,500
Working:
Selling Price per unit $         12.00
Less: Variable cost per unit $            4.00
Contribution Margin per unit $            8.00
Step-3:Calculation of Unit sales volume required to earn profit of $ 5,000
Fixed Cost $       44,000
Target Profit $         5,000
Target Contribution Margin $       49,000
/Contribution margin per unit $            8.00
Target units to be sold 6125

ekkarill92 answered 2 years ago
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