Question 17 In 2016 Manhoff Company had a breakeven point of

Question 17

In 2016, Manhoff Company had a break-even point of $332,000 based on a selling price of $8 per unit and fixed costs of $149,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $428,000.

Question 17 In 2016, Manhoff Company had a break-even point of $332,000 based on a selling price of $8 per unit and fixed costs of $149,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $428,000.

Solution

Variable cost per unit = $ 4.4

Contribution margin ratio = 45 %

Increase in fixed cost = $ 43,600

Explanation

For 2016:

Breakeven point = Fixed cost /Contribution margin ratio

$ 332,000 = $ 149,000/ Contribution margin ratio

Contribution margin ratio = $ 149,000/$ 332,000 = 0.448795 or 45 %

Variable cost % = Sales - Contribution margin %

                            = 100 – 45 % = 55 %

Variable cost = Selling price x Variable cost %

                        = $ 8 x 0.55 = $ 4.4

For 2017:

Breakeven point = Fixed cost /Contribution margin ratio

$ 428,000 = Fixed cost /0.45

Fixed cost = $ 428,000 x 0.45 = $ 192,600

Fixed cost increased by, $ 192,600 - $ 149,000 = $ 43,600