7 At a level of 20009 units sold Gail Corp has sales of 4000

7. At a level of 20,009 units sold, Gail Corp has sales of $400,0oo, a contribution margin ratio Gail Corp has sales of 400,000, a contribution margin ratio of 40%, and a profit of $40,000. What is the break-even point in units? A. 12,000 B. 8,000 C. 20,000 D. 15,000

Solution

7 Option (d) Given Data Unit sold 2000 Sales $ 200,000 Contribution Margin Ratio 40% Profit $40,000 Break Even point ? Solution Break Even Point in unit = Fixed Cost / Contribution per Unit = $ 120,000 / $ 8 = 15,000 Unit working Note No 1 Contribution Margin = Contribution / Sales 0.4 = Contribution / $ 400,0000 Contribution = $ 160,000 Contribution Per Unit = Contribution / Unit $ 160,000 / 20000 = $ 8 per unit working Note No 2 Contribution = Fixed Cost + Profit $ 160,000 = Fixed Cost + $ 40,000 Fixed Cost = $ 120,000 10 Option (c) Contribution = Fixed Cost + Profit Now $ 450,000 = $ 300,000 + $ 150,000 If sales is increased by 20 % then Contribution will also increased by 20% After Increase contribution would be $ 450,000+20% x $450,000 =   $ 540,000 After Change Contribution = Fixed Cost + Profit $ 540,000 = $ 300,000 + profit Profit = $ 240,000 Increase in profit ($ 240,000- $ 150,000)/ $ 150,000 =   60 % 15 Option (b) If jones Division is dropped Sales $ 800,000 Less variable Cost $ 600,000 Contribution Margin $ 200,000 Less : -Fixed Cost $ 300,000 ($150,000+$150,000) Loss $ 100,000 Please feel free to ask if anything about above solution in comment section of the question.