Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 5, Problem 9P
Boise Timber Co. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are
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Calloway Cab Company determines its break-even strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $440,000, but 20 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $4.00. How many units does the firm need to sell to reach the cash break-even point? (Round your answer to the nearest whole number.)
Suppose ABC Corp’s break-even point is revenues of $1,100,000. Fixed costs are $660,000. Calculate the contribution margin percentage. Calculate the selling price if variable costs are $16 per unit. Suppose 75 000 units are sold, calculate the profit earned. Willo the company beprofitable if able to sell 30,000 units? Explain. What should the company do to increase its profit above break-even point.
To be profitable, a firm must recover its costs. These costs include both its fixed and its variable costs. One way that a firm evaluates at what stage it would recover the invested costs is to calculate how many units or how much in dollar sales is necessary for the firm to earn a profit.
Consider the case of Blue Mouse Manufacturers:
Blue Mouse Manufacturers is considering a project that will have fixed costs of $10,000,000. The product will be sold for $37.50 per unit, and will incur a variable cost of $11.25 per unit.
Given Blue Mouse’s cost structure, it will have to sell units to break even on this project (QBEQBE).
Chapter 5 Solutions
Foundations of Financial Management
Ch. 5 - Discuss the various uses for break-even analysis....Ch. 5 - What factors would cause a difference in the use...Ch. 5 - Explain how the break-even point and operating...Ch. 5 - Prob. 4DQCh. 5 - What does risk taking have to do with the use of...Ch. 5 - Discuss the limitations of financial leverage....Ch. 5 - Prob. 7DQCh. 5 - Explain how combined leverage brings together...Ch. 5 - Explain why operating leverage decreases as a...Ch. 5 - Prob. 10DQ
Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Draw two break-even graphs-one for a conservative...Ch. 5 - Prob. 5PCh. 5 - Shawn Pen & Pencil Sets Inc. has fixed costs of ....Ch. 5 - Calloway Cab Company determines its break-even...Ch. 5 - Prob. 8PCh. 5 - Boise Timber Co. computes its break-even point...Ch. 5 - The Sterling Tire Company’s income statement for...Ch. 5 - Prob. 11PCh. 5 - Healthy Foods Inc. sells 50-pound bags of grapes...Ch. 5 - United Snack Company sells 50-pound bags of...Ch. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Lenow’s Drug Stores and Hall’s Pharmaceuticals...Ch. 5 - The capital structure for Cain Supplies is...Ch. 5 - Sterling Optical and Royal Optical both make glass...Ch. 5 - Prob. 19PCh. 5 - Sinclair Manufacturing and Boswell Brothers Inc....Ch. 5 - DeSoto Tools Inc. is planning to expand...Ch. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Mr. Gold is in the widget business. He currently...Ch. 5 - Delsing Canning Company is considering an...Ch. 5 - Prob. 2WECh. 5 - Prob. 3WECh. 5 - Prob. 4WECh. 5 - Prob. 5WE
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- If TechCor has fixed cost of $60,000 variable costs of $1.20/unit, a sale price/unit of $7 and depreciation expense of $25,000 what is its cash break even in units?arrow_forwardMiko Firm is assessing its cost structure. It has P680,000 in fixed operating costs, P5.80 in variable costs per unit produced, and its goods sell for P9.00 per unit. What is the company's breakeven point, or the point at which profits equals costs in terms of unit sales volume? * Your answerarrow_forwardA company's fixed operating costs are $740,000, its variable costs are $2.25 per unit, and the product's sales price is $4.65. What is the company's break-even point; that is, at what unit sales volume will its income equal its costs? Round your answer to the nearest whole number. unitsarrow_forward
- A company’s fixed operating costs are $430,000, its variable costsare $2.95 per unit, and the product’s sales price is $4.50. What is the company’s break-evenpoint; that is, at what unit sales volume will its income equal its costs?arrow_forwardD&R Corp. has annual revenues of $262,000, an average contribution margin ratio of 33%, and fixed expenses of $101,800. Required: a. Management is considering adding a new product to the company's product line. The new item will have $8.7 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio. b. If the new product adds an additional $29,100 to D&R's fixed expenses, how many units of the new product must be sold at the price calculated in part a to break even on the new product? c. If 20,900 units of the new product could be sold at a price of $14.2 per unit, and the company's other business did not change, calculate D&R's total operating income and average contribution margin ratio. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C If 20,900 units of the new product could be sold at a price of…arrow_forwardSuppose Morrison Corp.’s breakeven point is revenues of $1,100,000. Fixed costs are $660,000. Q1. Compute the contribution margin percentage. Q2. Compute the selling price if variable costs are $16 per unit. Q3. Suppose 75,000 units are sold. Compute the margin of safety in units and dollars. Q4. What does this tell you about the risk of Morrison making a loss? What are the most likely reasons for this risk to increase?arrow_forward
- A company's fixed operating costs are $430,000, its variable costs are $2.95 per unit, and product's sales price is $4.50. What is the company's break-even point; that is, at what unit sales volume will its income equal its cost?arrow_forwardKent Company manufactures a product that sells for $54.00. Fixed costs are $341,000 and variable costs are $23.00 per unit. Kent can buy a new production machine that will increase fixed costs by $14,200 per year, but will decrease variable costs by $6.00 per unit. What effect would the purchase of the new machine have on Kent's break-even point in units?arrow_forwardSuppose ABC Corp’s break-even point is revenues of $1,100,000. Fixed costs are $660,000 a. Calculate the contribution margin percentage. b. Calculate the selling price if variable costs are $16 per unit. c. Suppose 75 000 units are sold. Calculate the profit earned. d. Will the company be profitable if able to sell 30,000 units? Explain. c. What should the company do to increase its profit above break-even point?arrow_forward
- Shapland Inc. has fixed operating costs of $500,000 and variable costs of $50per unit. If it sells the product for $75 per unit, what is the break-even quantity?arrow_forwardBlossom Footballs, Inc., management expects to sell 15,000 balls this year. The balls sell for $105 each and have a variable cost per unit of $71. Fixed costs, including depreciation and amortization, are currently $180,000 per year. How much can either the fixed costs or the variable cost per unit increase before the company has a negative EBIT. (Round increase in fixed cost to 0 decimal places, e.g. 5,275 and variable cost to 2 decimal places, e.g. 15.25.)Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Fixed costs could increase by $ and variable costs could increase by $ per unitarrow_forwardAmalgamated Fenderdenter’s sales are $10 million. The company spends $3.5 millionfor purchase of direct materials and $2.5 million for direct labor; overhead is $3.5 millionand profit is $500,000. Direct labor and direct material vary directly with sales, butoverhead does not. The company wants to double its profit.a. By how much should the firm increase annual sales?b. By how much should the firm decrease material costs?c. By how much should the firm decrease labor cost?arrow_forward
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