Problem 17-AA HO Compute the following on the attached sheet: I. Breakeven point
ID: 2584989 • Letter: P
Question
Problem 17-AA HO Compute the following on the attached sheet: I. Breakeven point when Sales is $5000 per item and variable cost is 60% of sales, fixed cost are $3,000,000. Prepare and illustrate proof of your result. 2. Graph the above on the attached graph sheet. 3. Assume same data above, how many must the firm sell to 4. What is the profit or loss if the firm sells: Demonstrate Proof achieve a profit of $500,000. of your result: a. 1000 units b. 2000 units 5, what is the breakeven-point if variable cost is 75% of Sales; discuss whether this result is better or worst than the result in Item 1 above; discuss why. How is your answer related to cost control. Also demonstrate proof of your result.Explanation / Answer
1.
Contribution margin = $5,000 X (1 - 0.60) = $2,000
Breakeven point in units = Total fixed cost / Contribution margin per unit
= $3,000,000/$2,000
= 1,500 units
Breakeven point in sales = 1,500 units X $5,000 = $7,500,000
3.
Units to sell to achieve a profit of 500,000 dollars:
(Total fixed cost + Desired profit)/contribution margin per unit
= ($3,000,000 + 500,000)/$2,000
= 1,750 units
4.
a. Sell of 1,000 units
= (1,000 X $2,000) - 3,000,000
= - 1,000,000
So, there is a loss of $1,000,000
b. Sell of 2,000 units
= (2,000 X $2,000) - 3,000,000
= 1,000,000
So, there is a profit of $ 1,000,000
5.
If variable cost is 75% of sale then contribution margin will be 25%
Contribution margin per unit = $1,250
Breakeven point = 3,000,000/1,250
= 2,400 units
Result is worst than the result in item 1 above. Because there is more units to be sold to achieve breakeven point in case 5 as compare to case 1.