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    Ronnie Cat Inc: Compute break-even point in units and dollar

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    Ronnie Cat Inc., produces and sells electric lawn mowers for $270 each. The variable costs of each mower total $165 while total monthly fixed costs are $19,950. Current monthly sales are $101,250. The company is considering a proposal that will increase the selling price by 5.55%, increase total fixed costs by 50% and increase unit sales to x units per month.

    1.) Compute the company's current break-even point in units and dollars.
    2.) Compute the company's break-even point in units and dollars under the proposal.
    3.) Would you recommend the company accept the proposal.

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    Solution Preview

    Question 1:
    Break Even point in units (monthly) = Monthly Fixed cost / (Selling Price - Variable Cost)
    =19950/(270-165) = 190 Units
    Break even point in dollars = 190 units * 270=$51,300

    Question 2:
    New selling Price = 270*(1+5.55%)=284.99
    New ...

    Solution Summary

    Explains how to do CVP analysis by providing step-by-step solution to the problem.