LO45 Breakeven Analysis and Planning Future Sales v1a Breake

LO4,5 Breakeven Analysis and Planning Future Sales v1a: Breakeven units: 200,000 units P9. Bar Company has of 500,000 units per year. Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Variable sell ing and administrative costs are $5 per unit, and fixed selling and administrative costs are a maximum capacity lits:300,000 units S300,000 per year. The current sales price is S36 per unit. REQUIRED 1. What is the breakeven point in (a) sales units and (b) sales dollars? 2. BUSINESS APPLICATION How many units must Bar Company sell to carn a profit of S600,000 per year? 3. BUSINESS APPLICATIONA strike at one of the company\'s major suppliers has caused a shortage of materials, so the current year\'s production and sales are limited to 400,000 units. To partially offset the effect of the reduced sales on profit, man agement is planning to reduce fixed costs to $1,000,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular sell ing price of S36 per unit. a. What amount of fixed costs was covered by the total contribution margin of the first 30,000 units sold b. What contribution margin pe r unit will be needed on the remaining 370,000 units to cover the remaining fixed costs and to earn a profit of $290,000 this year

Solution

For filing the blanked cells see below calculations:-

Calculation of CM per unit required on remaining units-
Total FC = $1,000,000
And FC already covered i.e. $30000×6 = $180000

So remaining FC to be covered by sale of remaining 370000 units = 1,000,000 - 180000 =$820000.

Also note that by selling remaining 370000 units profit of 290000 is to be generated.
So for answer 3(b) -
CM per unit
= (FC+P)/no. Of units
= (820000+290000)/370000
= $ 3 CM per unit on remaining units.

For proof section see below-
1. Required CM :-
We know that CM= FC + P
So, CM = 290000+1000000
            = $ 1290000
So total contribution margin required is $1290000.
And fill the table as follows-
Proof:-
Required contribution margin                     =1290000
Less: contribution
already generated = 180000
Balance to be
Generated = 1110000

Required CM per unit on balance sales=
(balance of cm to be generated)/(remaining sales volume)
= 1110000/370000
= $ 3

I hope that u have found answers of all the blanked cells.