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    Break Even Point and Contribution Margin

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    James Manufacturing company provides the following information about its cost structure:
    Selling Price $20.00 per book
    Variable cost per unit: $6.00
    Fixed costs: 112000 per year
    How many units must be sold to break-even?
    Assume the variable cost and the price were both cut by $4.00 per unit. Which of the following would change?
    Contribution margin per unit
    Breakeven point in units
    Total fixed costs
    Contribution margin ratio

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    Solution Preview

    James Company
    (a) Selling price per unit $20

    Less:Variable cost $6
    © Contribution margin per unit (a-b) $14
    Contribution margin ratio (Contribtion/sales) 70%
    Fixed overhead- $112,000
    Break Even point in units= Fixed cost
    Contribution margin
    Break Even point in units= 8,000 Units

    Sales (20-4) $16
    Variable cost (6-4) $2
    1 Contribution margin $14 No Change

    2 Break Even point in units= Fixed ...

    Solution Summary

    The solution contains step by step calculations of break even point in units and dollar amount under the different situations i.e. cut in selling price and variable cost per unit. Solution is supported by explanatory notes regarding fixed cost, variable cost and break even analysis.