Cvp & Budgting Planning
Sales (40,000 units) $1,000,000 Variable expenses 700,000 Contribution margin 300,000 Fixed expenses 330,000 Net income (loss) $ (30,000)
1. What was the company 's break-even point in sales dollars in 2008?
2. How many additional units would the company have had to sell in 2009 in order to earn net income of $30,000?
3. If the company is able to reduce variable costs by $2.50 per unit in 2009 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $35,000?
Solution
1. $330,000 ———— = $1,100,000 30% Breakeven point in units = Fixed Costs / (Sales – Variable costs)
Variable cost per unit = 60% x $10 = $6
Breakeven point in units= 1,920,000 / ($10 -$6) = 1,920,000 / 4 = 480,000 units needed to sell to break-even
Breakeven point in dollars = Breakeven point in units x sales price = 480,000 x $10 = $4,800,000
2. $330,000 + $30,000 ————————— = $1,200,000 Total sales needed. 30% $1,200,000 ————— = 48,000 total units to be sold $25 40,000 actual units sold 8,000 additional units to be sold 3. 2008 Variable cost per unit = $17.50 ($700,000 ÷ 40,000 units) Variable cost reduction = 2.50 2009 Variable cost per unit $15.00 Expected contribution margin $10 ($25 – $15) $330,000 + $35,000 ————————— = 36,500 units $10
Keller Company estimates that variable costs will be 60% of sales and fixed costs will total $1,920,000. The selling price of the product is $10, and 600,000 units will be sold.
Instructions
Using the mathematical equation, (a) Compute the break-even point in units and dollars. (b) Compute the margin of safety in dollars and as a ratio. (c) Compute net income. a-
Breakeven point in units = Fixed Costs / (Sales – Variable costs)
Variable cost per unit = 60% x $10 = $6
Breakeven point in units= 1,920,000 / ($10 -$6) = 1,920,000
1. What was the company 's break-even point in sales dollars in 2008?
2. How many additional units would the company have had to sell in 2009 in order to earn net income of $30,000?
3. If the company is able to reduce variable costs by $2.50 per unit in 2009 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $35,000?
Solution
1. $330,000 ———— = $1,100,000 30% Breakeven point in units = Fixed Costs / (Sales – Variable costs)
Variable cost per unit = 60% x $10 = $6
Breakeven point in units= 1,920,000 / ($10 -$6) = 1,920,000 / 4 = 480,000 units needed to sell to break-even
Breakeven point in dollars = Breakeven point in units x sales price = 480,000 x $10 = $4,800,000
2. $330,000 + $30,000 ————————— = $1,200,000 Total sales needed. 30% $1,200,000 ————— = 48,000 total units to be sold $25 40,000 actual units sold 8,000 additional units to be sold 3. 2008 Variable cost per unit = $17.50 ($700,000 ÷ 40,000 units) Variable cost reduction = 2.50 2009 Variable cost per unit $15.00 Expected contribution margin $10 ($25 – $15) $330,000 + $35,000 ————————— = 36,500 units $10
Keller Company estimates that variable costs will be 60% of sales and fixed costs will total $1,920,000. The selling price of the product is $10, and 600,000 units will be sold.
Instructions
Using the mathematical equation, (a) Compute the break-even point in units and dollars. (b) Compute the margin of safety in dollars and as a ratio. (c) Compute net income. a-
Breakeven point in units = Fixed Costs / (Sales – Variable costs)
Variable cost per unit = 60% x $10 = $6
Breakeven point in units= 1,920,000 / ($10 -$6) = 1,920,000