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    Calculate Current Break-Even Point in Units Sold, Revenue

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    11. What is the purpose of the explanatory notes and other financial information that is presented in the annual report in conjunction with the financial statements? Describe three items that will be presented in this section of the annual report.

    12. Preppy Co. makes and sells a single product. The current selling price is $30 per unit. Variable costs are $21 per unit, and fixed expenses total $90,000 per month. Sales volume for July totaled 12,000 units. Operating income is presented below:

    Volume Per unit Total %
    Revenue 12,000 $30.00 $360,000 100
    Variable Expense 12,000 21.00 252,000 70
    Contribution Margin 12,000 $ 9.00 $108,000 30
    Fixed Expenses 90,000
    Operating Income $ 18,000

    a.Calculate the current break-even point in units sold and total revenues.
    b.Management is considering the use of automated production equipment. If this were done, variable costs would drop to $15.00 per unit, but fixed expenses would increase to $100,000 per month.
    1.Calculate operating income at a volume of 12,000 units per month with the new cost structure.
    2.Calculate the break-even point in units with the new cost structure.
    c.Do you believe management of Preppy Co. should purchase the new equipment? Explain your answer.

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    Solution Summary

    Comments and computations to these two break-even point questions are given in Excel.