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# Break Even and Target Income

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

#### 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
____________
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