Question

Campbell Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $43.

Variable costs
Manufacturing	$	11	per unit
Selling		5	per unit
Fixed costs
Manufacturing	$	152,000	per year
Selling and administrative	$	212,500	per year

Required

Use the per-unit contribution margin approach to determine the break-even point in units and dollars.

Use the per-unit contribution margin approach to determine the level of sales in units and dollars required to obtain a profit of $153,900.

Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 20,500 units, how much could it pay in salaries for salespeople and still have a profit of $153,900? (Hint: Use the equation method.)

Answer 1

Break-even point In units=Fixed cost/Contribution margin per unit

Contribution margin per unit=Sales price-(Variable Manufacturing cost+Variable selling cost)=43-(11+5)=27

Break-even point In units=(152000+212500)/27= 364500/27=13500 units

Break even point in $=Fixed cost /P.V Ratio

P.V Ratio=(Contribution/Net sales )*100=(27/43)*100=62.79%

Break even point in $=364500 /62.79%=580506.50

Level of sales required to obtain a profit of $153900 in units=(Fixed cost+Desired profit)/Contribution margin per unit=(364500+153900)/27=19200 units

Level of sales required to obtain a profit of $153900 in $=(Fixed cost+Desired profit)/Contribution margin per unit=(364500+153900)/62.79%=$825609

Sales

(20500*43)

881500

Variable cost

Manufacturing

(20500*11)

225500

Contribution

656000

Less: Fixed cost other than salaries

Manufacturing

152000

Selling and administrative

212500

364500

291500

Less: Required profit

153900

Sales salaries

137600