Break-Even Units: Units for Target Profit Jay-Zee Company makes an in-car naviga
ID: 2513325 • Letter: B
Question
Break-Even Units: Units for Target Profit
Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 23,000 units at a price of $330 each. Product costs include:
Variable selling expense is a commission of 5 percent of price; fixed selling and administrative expenses total $111,000.
Required:
1. Calculate the sales commission per unit sold. If required, round your answers to the nearest dollar. Use rounded answers in subsequent computations.
$ per unit
Calculate the contribution margin per unit.
$ per unit
2. How many units must Jay-Zee Company sell to break even? Round your answer to the nearest whole number.
units
Prepare an income statement for the calculated number of units. If an amount is zero, enter "0". Do NOT round Break-even units and, if required, round your answer to the nearest dollar.
3. Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $351,528. Round your answer to the nearest whole number.
units
4. What if the Jay-Zee Company wanted to achieve a target operating income of $339,500? Would the number of units needed increase or decrease compared to your answer in Requirement 3? Round your answer to the nearest whole number.
Compute the number of units needed for the new target operating income.
units
Explanation / Answer
Answer to Part 1.
Sales Commission per Unit = Selling price per Unit * Commission percent
Sales Commission per Unit = $330 * 5%
Sales Commission per Unit = $16.50
Contribution margin per Unit = Selling Price per Unit – Variable Cost per Unit
Variable Cost per Unit = $69.00 + $40.00 + $10.00 + $16.50
Variable Cost per Unit = $135.50
Contribution margin per Unit = $330 - $135.50
Contribution margin per Unit = $194.50
Answer to Part 2.
Break Even Point (in Units) = Fixed Cost / Contribution Margin per Unit
Fixed Cost = $606,800 + $111,000
Fixed Cost = $717,800
Break Even Point (in Units) = 717,800 / 194.50
Break Even Point (in Units) = 3,690 Units
Jay-Zee Company
Income Statement
Sales
1,217,861
Less: Variable Expenses
500,061
Contribution Margin
717,800
Less: Fixed Expenses
717,800
Operating Income
0
Answer to Part 3.
Let the units to be sold be “x” Units
Profit = Contribution Margin – Fixed Cost
$351,528 = ($194.50 * x) - $717,800
$1,069,328 = 194.50 * x
x = 5,497.83 or 5,498 Units
Therefore, 5,498 units must be sold to achieve a profit of $351,528.
Answer to Part 4.
Let the units to be sold be “x” Units
Profit = Contribution Margin – Fixed Cost
$339,500 = ($194.50 * x) - $717,800
$1,057,300 = 194.50 * x
x = 5,435.99 or 5,436 Units
Therefore, 5,436 units must be sold to achieve a profit of $339,500.
The Units sold decrease as compared to units calculated in Part 3.
Jay-Zee Company
Income Statement
Sales
1,217,861
Less: Variable Expenses
500,061
Contribution Margin
717,800
Less: Fixed Expenses
717,800
Operating Income
0