Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
Question
Book Icon
Chapter 18, Problem 7QS
To determine

Break-even Point:

The break-even point is the amount of sales that does not result in any loss or profit for a company. It is used for the various cost control goals as it covers the total cost of operation that would be incurred.

To identify: The break-even point.

Expert Solution & Answer
Check Mark

Explanation of Solution

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sale price per unit is $90.
The variable cost per unit is $36.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $90 for sales per unit and $36 for variable cost per unit.

    Contributionmarginperunit=$90$36 =$54 ................ (1)

The contribution margin per unit is $54.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $54. (Calculated in equation (1))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $54 for contribution margin per unit.

    Break-evenpoint= $162,000 $54 =3,000units

Hence, the break-even point is 3,000 units.

1. Total fixed cost increased to $190,000.

In order to calculate the break- even point, contribution margin needs to calculate.

The fixed cost is $190,000. (Given)
The contribution margin per unit is $54. (Calculated in equation (1))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $190,000 for fixed cost and $54 for contribution margin per unit.

    Break-evenpoint= $190,000 $54 =3,519units

Hence, the break-even point is 3,519 units. As the break-even point has increased the answer will be (I).

2. Variable cost decrease to $34.

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sale price per unit is $90.
The variable cost per unit is $34.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $90 for sales per unit and $34 for variable cost per unit.

    Contributionmarginperunit=$90$34 =$56 ................. (2)

The contribution margin per unit is $56.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $56. (Calculated in equation (2))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $56 for contribution margin per unit.

    Break-evenpoint= $162,000 $56 =2,893units

Hence, the break-even point is 2,893 units. As the break-even point has increased the answer will be (D).

3. Selling price per unit decrease to $80.

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sales per unit is $80.
The variable cost per unit is $36.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $80 for sales per unit and $36 for variable cost per unit.

    Contributionmarginperunit=$80$36 =$44 ................... (3)

The contribution margin per unit is $44.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $44. (Calculated in equation (3))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $44 for contribution margin per unit.

    Break-evenpoint= $162,000 $44 =3,682units

Hence, the break-even point is 3,682 units. As the break-even point has increased the answer will be (I).

4. Variable cost increased to $67.

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sales per unit is $90.
The variable cost per unit is $67.

Formula to calculate the contribution margin,

    Contributionmarginperunit=SalesperunitVariablecostperunit

Substitute $90 for sales per unit and $67 for variable cost per unit.

    Contributionmarginperunit=$90$67 =$23 .................... (4)

The contribution margin per unit is $23.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $23. (Calculated in equation (4))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $23 for contribution margin per unit.

    Break-evenpoint= $162,000 $23 =7,044units

Hence, the break-even point is 7,044 units. As the break-even point has increased the answer will be (I).

5. Total fixed cost decreased to $150,000.

In order to calculate the break- even point, contribution margin needs to calculate.

The fixed cost is $150,000. (Given)
The contribution margin per unit is $54. (Calculated in equation (1))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $150,000 for fixed cost and $54 for contribution margin per unit.

    Break-evenpoint= $150,000 $54 =2,778units

Hence, the break-even point is 2,778 units. As the break-even point has increased the answer will be (D).

6. Selling price increased to $120

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sale price per unit is $120.
The variable cost per unit is $36.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $120 for sales per unit and $36 for variable cost per unit.

    Contributionmarginperunit=$120$36 =$84 ............ (5)

The contribution margin per unit is $84.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $44. (Calculated in equation (5))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $84 for contribution margin per unit.

    Break-evenpoint= $162,000 $84 =1,929units

Hence, the break-even point is 1,929 units. As the break-even point has increased the answer will be (D).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 18 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

Ch. 18 - Prob. 6DQCh. 18 - Prob. 7DQCh. 18 - Prob. 8DQCh. 18 - Prob. 9DQCh. 18 - Prob. 10DQCh. 18 - Prob. 11DQCh. 18 - Prob. 12DQCh. 18 - Prob. 13DQCh. 18 - Prob. 14DQCh. 18 - Prob. 15DQCh. 18 - Prob. 16DQCh. 18 - Prob. 17DQCh. 18 - Prob. 18DQCh. 18 - Prob. 19DQCh. 18 - APPLE Should Apple use single product or...Ch. 18 - Prob. 21DQCh. 18 - Prob. 1QSCh. 18 - Prob. 2QSCh. 18 - Cost behavior estimation---high-low method P1 The...Ch. 18 - Prob. 4QSCh. 18 - Prob. 5QSCh. 18 - Prob. 6QSCh. 18 - Prob. 7QSCh. 18 - Prob. 8QSCh. 18 - Prob. 9QSCh. 18 - Prob. 10QSCh. 18 - Prob. 11QSCh. 18 - Prob. 12QSCh. 18 - Prob. 13QSCh. 18 - Prob. 14QSCh. 18 - Prob. 15QSCh. 18 - Prob. 16QSCh. 18 - Prob. 17QSCh. 18 - Following are five graphs representing various...Ch. 18 - Prob. 2ECh. 18 - Prob. 3ECh. 18 - Prob. 4ECh. 18 - Prob. 5ECh. 18 - Prob. 6ECh. 18 - Prob. 7ECh. 18 - Prob. 8ECh. 18 - Prob. 9ECh. 18 - Prob. 10ECh. 18 - Prob. 11ECh. 18 - Prob. 12ECh. 18 - Prob. 13ECh. 18 - Prob. 14ECh. 18 - Prob. 15ECh. 18 - Prob. 16ECh. 18 - Prob. 17ECh. 18 - Prob. 18ECh. 18 - Prob. 19ECh. 18 - Prob. 20ECh. 18 - Prob. 21ECh. 18 - Prob. 22ECh. 18 - Prob. 23ECh. 18 - Prob. 24ECh. 18 - Prob. 25ECh. 18 - Prob. 1PSACh. 18 - Prob. 2PSACh. 18 - Prob. 3PSACh. 18 - Prob. 4PSACh. 18 - Prob. 5PSACh. 18 - Prob. 6PSACh. 18 - Prob. 7PSACh. 18 - Prob. 1PSBCh. 18 - Prob. 2PSBCh. 18 - Prob. 3PSBCh. 18 - Prob. 4PSBCh. 18 - Prob. 5PSBCh. 18 - Prob. 6PSBCh. 18 - Prob. 7PSBCh. 18 - Prob. 18SPCh. 18 - Apple offers extended service contracts that...Ch. 18 - Prob. 2BTNCh. 18 - Prob. 3BTNCh. 18 - Prob. 4BTNCh. 18 - Prob. 5BTNCh. 18 - Prob. 6BTNCh. 18 - Prob. 7BTNCh. 18 - Prob. 8BTNCh. 18 - Prob. 9BTN
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education