Question

In: Accounting

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

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.)

Solutions

Expert Solution

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

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