College Park Corporation produced and sold 150,000 units of its only product dur
ID: 2594815 • Letter: C
Question
College Park Corporation produced and sold 150,000 units of its only product during the year just ended at an average price of $12 per unit. Variable manufacturing costs were $5 per unit, and variable marketing costs were $3 per unit sold. Fixed costs amounted to $250,000 for manufacturing and $170,000 for marketing. There was no year-end work-in-process inventory.
Show all the steps and calculations
1. a) Compute College Park Corporation’s break-even point in sales units for the year just ended.
b) Compute College Park Corporation’s break-even point in sales dollars for the year just ended.
2. Compute the revenue that would have been required to earn an operating income of $200,000 during the year just ended.
3. College Park Corporation’s variable costs are expected to increase by 20 % in the coming year. Compute the break-even point in sales units for the coming year.
4. If College Park Corporation’s variable manufacturing costs do in fact increase by 20 percent but the variable marketing costs remain the same (i.e., at $3 per unit), then compute the selling price that would yield the same contribution-margin ratio in the coming year as was achieved in the current year just ended.
Explanation / Answer
Selling price per unit 12 variable manufacturing cost -5 Variable marketing costs -3 contribution margin 4 contribution margin 4/12 33.33% 1a) BEP(in sales units)= total fixed cost/contribution margin per unit 420,000/4 105000 b) BEP(in sales dollars) = 105000*12 1260000 2) revenue required = ( total fixed cost+operating income)/contribution margin (420,000+200,000)/33.333333% 1860000 3) new variable cost =8*120%= 9.6 new contribution margin = 12-9.6= 2.4 Break even point in sale units = 420,000/2.4 175000 units 4) new variable cost variable manufacturing cost 6 Variable marketing costs 3 total variable cost 9 selling price required 9/66.6666667% 13.5 answer