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    Break Even and Target Income

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    Break-Even Computation

    B&B company reports the following items:

    Direct materials per unit . . . . . . . . $ 2.25
    Direct labor per unit . . . . . . . . . . 3.95
    Variable overhead per unit . . . . 1.80
    Monthly rent . . . . . . . 2,200.00
    Monthly depreciation . . . . . 680.00
    Other monthly fixed costs. . . . . . . . 2,400.00
    Sales price per unit . . . . . . 14.00

    Using the above information, compute the company's monthly break-even point (in units).

    Break-Even Point and Target Income
    Steven Newman, Inc., estimates 2009 costs to be as follows:

    Direct materials . . . . . . $5 per unit
    Direct labor. . . . . . $8 per unit
    Variable manufacturing overhead . . . $3 per unit
    Variable selling and administrative expenses . . . . . . . . $2 per unit
    Fixed expenses. . . . . . . $80,000

    1. Assuming that Newman will sell 55,000 units, what sales price per unit will be needed
    to achieve a $75,000 profit?
    2. Assuming that Newman decides to sell its product for $23 per unit, determine the
    break-even sales volume in dollars and units.
    3. Assuming that Newman decides to sell its product for $23 per unit, determine the
    number of units it must sell to generate a $100,000 profit

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    Solution Preview

    B&B Company

    First, you must figure the cost of goods sold (COGS) to determine the amount of profit each unit when generate when sold:
    Direct Material= $2.25 per unit
    Direct Labor= $3.95 per unit
    Variable Overhead=$1.80 per unit
    ____________
    Total cost = $8.00 per unit

    Now, you must figure the profit generated for each unit sold:
    Profit=Sales Price-COGS
    Gross Profit (or contribution margin) =$14.00-$8.00=$6.00 per unit sold

    Now, you must total all fixed expenses:
    Rent= $2,200
    Other monthly fixed costs=$2,400
    _____
    Total Fixed costs= $4,600
    (I know a monthly depreciation figure is given, but it is only ...

    Solution Summary

    Break even analysis and target income for B&B Company and Steven Newman, Inc.

    $2.19

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