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# Break-Even Analysis

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(See attached file for full problem description)

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The Hartnett Corporation manufactures baseball bats with Sammy Sosa's autograph stamped on them. Each bat sells for \$13 and has a variable cost of \$8. There is \$20,000 in fixed costs involved in the production process.

a. Compute the break-even point in units.

Selling price per item= \$ 13
Variable cost per bat= \$ 8
Contribution margin= 5
Fixed cost............= 20,000
Breakeven Units=20,000/5= 4,000

b. Find the sales (in units) needed to earn a profit of \$15,000

(how do you find the sales in units to earn profits of 15,000?)
Do you increase the selling price or decrease the VC?

The problem below is a sample problem, can you please walk me through this step by step?

Therapeutic Systems sells its products for \$8 per unit. It has the following costs:
Rent \$120,000
Factory labor \$1.50 per unit
Executive salaries \$112,000
Raw material \$.70 per unit
Separate the expenses between fixed and variable costs per unit. Using this information
and the sales price per unit of \$6, compute the break-even point.

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(See attached file for full problem description)

#### Solution Preview

The Hartnett Corporation manufactures baseball bats with Sammy Sosa's autograph
stamped on them. Each bat sells for \$13 and has a variable cost of \$8.
There is \$20,000 in fixed costs involved in the production process.

a. Compute the break-even point in units.

Selling price per item= \$ 13
Variable cost per bat= \$ 8
Contribution margin= 5
Fixed cost............= 20,000
Breakeven Units=20,000/5= 4,000

b. Find the sales (in units) needed to earn a profit of \$15,000

(how do you find the sales in units to earn profits of 15,000?)
Do you increase the selling price or decrease the VC?

If we need to earn a profit, this figure is simply added to the fixed costs and the new number of units found out ( we do not change the selling price or the variable costs since these are given and cannot be ...

#### Solution Summary

The solution has various problems relating to breakeven calculations.

\$2.19

## Managerial Accounting: Break Even Point Analysis

MSW:4-1
Cost-volume-profit analysis. Patton Company produces one type of sunglasses with the following costs and revenues for the year:
Total Revenues \$6,000,000
Total Fixed Costs \$2,000,000
Total Variable Costs \$2,000,000
Total Quantity Produced and Sold 100,000 Units

Required:
a. What is the selling price per unit?
b. What is the variable cost per unit?
c. What is the contribution margin per unit?
d. What is the break-even point in units?
e. Assume an income-tax rate of 40 percent. Assuming a relevant range, what quantity of units is required for Patton Company to make an after-tax operating profit of \$6,000,000 for the year?

MSW:4-2
Break-even and target profits; volume defined in sales dollars. The manager of Hsu's Carryout Express estimates operating costs for the year will total \$230,000 for fixed costs.

Required:

a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
b. Find the break-even point in sales dollars with a contribution margin ratio of 20 percent.
c. Find the sales dollars required with a contribution margin ratio of 50 percent to generate a profit of \$150,000.

MSW:4-3
CVP analysis with step costs. Techniques Company has one product: customized thumb drives with logos for various businesses. The sales price of \$18 remains constant per unit regardless of volume, as does the variable cost of \$10 per unit. The company is considering operating at one of the following three monthly levels of operations:

Volume Range
(production and sales) Total
Fixed Costs Increase in Fixed Costs from
Previous Level
Level 1 0-5,000 \$ 30,000 --
Level 2 5,001-15,000 50,000 \$20,000
Level 3 15,001-30,000 80,000 30,000

Required:

a. Calculate the break-even point(s) in units.
b. If the company can sell everything it makes, should it operate at level 1, level 2, or level 3? Support your answer.

MSW:4-4 Genia Enterprises, Inc. has the capacity to produce 12,000 units per year. Expected operations for the year are

Sales (10,000 units @ \$20) \$200,000
Manufacturing costs:
Variable \$8 per unit
Fixed \$40,000