Question

Break-Even Units: Units for Target Profit

Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 24,000 units at a price of $330 each. Product costs include:

Direct materials $69.00
Direct labor $40.00
Variable overhead $10.00
Total fixed factory overhead $488,150

Variable selling expense is a commission of 6 percent of price; fixed selling and administrative expenses total $94,400.

Required:

1. Calculate the sales commission per unit sold. If required, round your answers to the nearest dollar. Use rounded answers in subsequent computations.
$ per unit

Calculate the contribution margin per unit.
$ per unit

2. How many units must Jay-Zee Company sell to break even? Round your answer to the nearest whole number.
units

Prepare an income statement for the calculated number of units. If an amount is zero, enter "0". Do NOT round Break-even units and, if required, round your answer to the nearest dollar.

Jay-Zee Company
Income Statement
$

$

$

3. Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $346,092. Round your answer to the nearest whole number.
units

4. What if the Jay-Zee Company wanted to achieve a target operating income of $334,250? Would the number of units needed increase or decrease compared to your answer in Requirement 3? Round your answer to the nearest whole number.

Compute the number of units needed for the new target operating income.
units

Answer 1

Answer-1)-Sales commission per unit =$330 per unit *6% =$20 per unit

Contribution margin per unit= Selling price per unit-Variable cost per unit

=$330 per unit-($69+$40+$10+$20) =$191 per unit

2)-Break even point in units =Fixed costs/ Contribution margin per unit

=($488150+$94400)/$191 per unit

=$582550/$191 per unit =3050 units

Operating income
Sales	3050 unit*$330 per unit	1006500
Less:- Variable cost	3050 unit*$139 per unit	423950
Contribution		582550
Less:- Fixed costs
factory overhead		488150
Selling & administrative exp.		94400
Net operating income		0

3)-No. Of units to achieve target income of $346092= (Fixed costs+ Target income)/ Contribution margin per unit

=($582550+$346092)/$191 per unit =4862 units

4)- No. Of units to achieve new target income of $334250= (Fixed costs+ Target income)/ Contribution margin per unit

=($582550+$334250)/$191 per unit =4800 units

The no. of units would be decreased by 62 units compared to in requirement 3.