Break-Even Units: Units for Target Profit Jay-Zee Company makes an in-car naviga
ID: 2531644 • 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 16,000 units at a price of $320 each. Product costs include: Direct materials $68
Direct labor $40
Variable overhead $12
Total fixed factory overhead $500,000
Variable selling expense is a commission of 5 percent of price; fixed selling and administrative expenses total $116,400.
Required:
1. Calculate the sales commission per unit sold. Calculate the contribution margin per unit.
2. How many units must Jay-Zee Company sell to break even? Prepare an income statement for the calculated number of units.
3. Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $333,408.
4. What if the Jay-Zee Company wanted to achieve a target operating income of $322,000? Would the number of units needed increase or decrease compared to your answer in Requirement 3? Compute the number of units needed for the new target operating income.
Explanation / Answer
Answer for 1)
Sales commission per units sold:$320×5%=$16
Contribution margin per unit=
Sales -variable costs(direct material,labour,variable costs,commission)
=$320-$68-$40-$12-$16
=$184 per unit.
Answer for 2)
Break even sales:
(factory fixed overhead+fixed selling and administration cost)/Contribution
=($500000+$116400)/$184=3350 units
Income statement for break even sales:
Answer for 3)
Sales for reaching targeted profit:
(Targeted profit+fixed costs)/Contribution
=($333408+$616400)/$184=5162 units
Answer for 4)
The units needed to be decreased as compared to requirement 3 as there is decrease in profit expected:
Sales at targeted profit of $322000:
($322000+$616400)/$184
=$5100 units
Particulars ($) ($) Sales[3350 units×$320] 1072000 (Less)variable costs: Direct material[3350units×$68] (227800) Direct labour[3350×$40] (134000) Variable costs [3350units×$12] (40200) Variable selling expenses [$3350units×$16] (53600) Total variable costs (455600) Contribution 616400 (Less)Fixed costs: Fixed factory overhead (500000) Fixed selling and administration overhead (116400) Total fixed costs (616400) Profit/(lossl 0