Accounting Final

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3- calculate breakeven point ?

PROBLEM 8-35
Surreal Sound, Inc. manufactures and sells compact disks. Price and cost data are as follows:
Selling price per unit (package of two CDs)

$ 25.00

Variable Costs per unit:
Direct Materials

$ 8.20

Direct Labour

4.00

Manufacturing Overheads

6.00

Selling Expenses

1.60

Total Variable Costs per Unit

$19.80

Annual Fixed Costs
Manufacturing Overheads

$288,000

Selling & Administrative Overheads

414,000

Total Fixed Costs

$ 702,000
$ 3,500,000

Forecasted Annual Sales Volume (140,000 units)

Required:
1

What is Surreal‟s break even point in units?

2

What is the company‟s break even point in sales dollars?

3

How many units would Surreal Sound have to sell in order to earn $
390,000?

4

What is the firm‟s margin of safety?

5

Management estimates that direct labour costs will increase by 10% next year.
How many units will the company have to sell next year to reach its break even point? 6

If the company‟s direct labour costs do increase by 10 percent, what selling price per unit of product must it charge to maintain the same contribution margin ratio?

WwW.DiorBoy.Com

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WwW.DiorBoy.Com

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fixed costs unit contribution margin
$702,000

 135,000 units
$25.00  $19.80

1.

Break - even point (in units) 

2.

Break - even point (in sales dollars) 

3.

Number of sales units required to earn target net profit

4.

Margin of safety = budgeted sales revenue – break-even sales revenue

fixed cost contribution - margin ratio
$702,000

 $3,375,000
$25.00  $19.80
$25.00

fixed costs  target net profit unit contribution margin
$702,000  $390,000

 210,000 units
$25.00  $19.80


= (140,000)($25) – $3,375,000 = $125,000
5.

Break-even point if direct-labor costs increase by 10