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In: Accounting

STRATEGIC COST MANAGEMENT - BREAK-EVEN POINT AND CVP ANALYSIS

Cornwell Company is in business since 2010, makes swimwear for professional athletes. Analysis of the firm's record for the year reavelas the following:

                Average swimsuit selling price                      $140

                Average swimsuit expenses:

                    Direct Material                                           $60

                    Direct labor                                                  25

                    Variable overhead                                        15

               Annual fixed cost:

                    Selling                                                       $20,500

                    Administrative                                            48,000

The company's tax rate is 40 percent. Daisy Rin, company president, has asked you to help her answer: What is the break-even point in number of swimsuits and in dollar?

Solutions

Expert Solution

Variable cost  
    Direct material  $60
    Direct labor   25
    Variable overhead     15
TOTAL $100
Fixed Cost  
    Selling $20,500
    Administrative   48,000
TOTAL $68,500

Break-even point in numbers of swimsuits

      BEP (units) = Total Fixed Cost / Sales Price (per unit) - Variable cost (per unit)

                        = $68,500/$140-$100

                        = $68,500/$40

                        = 1, 712.5 or 1,713 units

Break-even point in dollar

     BEP (dollar) = Total Fixed Cost/ Sales Price(per unit)-Variable cost(per unit)/Sales Price(per unit)

                        = $68,500/$140-$100/$140

                        = $68,500/0.28571428571

                        = $239,750

1, 713 is the break-even point in units.

$239, 750 is the break-even point in dollar.

Yssah Rose Dimagiba answered 3 years ago
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