Explore BrainMass

Explore BrainMass

    Cost-Volume-Profit Analysis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    CollegePak Company produced and sold 60,000 backpacks during the year just ended at an average price of $20 per unit. Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold. Fixed costs amounted to $180,000 for manufacturing and $72,000 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.)

    Required:
    1.
    Compute CollegePak's break-even point in sales dollars for the year.

    Break-even point $

    2. Compute the number of sales units required to earn a net income of $180,000 during the year.

    Number of sales units

    3.
    CollegePak's variable manufacturing costs are expected to increase by 10 percent in the coming year. Compute the firm's break-even point in sales dollars for the coming year. (Do not round your intermediate calculations

    Break-even point $

    4.
    If CollegePak's variable manufacturing costs do increase by 10 percent, compute the selling price that would yield the same contribution-margin ratio in the coming year. (Do not round your intermediate calculations.

    Selling price $

    © BrainMass Inc. brainmass.com June 4, 2020, 2:05 am ad1c9bdddf
    https://brainmass.com/business/cost-volume-profit-analysis/cost-volume-profit-analysis-437846

    Solution Preview

    1. Compute CollegePak's break-even point in sales dollars for the year.

    Break-even point $630,000

    Break-even in sales dollars = Total Fixed Costs/((Contribution margin/unit)/Sales price/unit))
    Break-even in sales dollars = ($180,000 + $72,000)/(($20-$8-$4)/$20)
    Break-even in sales dollars = $252,000/($8/$20)
    Break-even in sales dollars = $252,000/.40
    Break-even in sales dollars = $630,000

    2. Compute the number of sales units required to earn a net income of $180,000 during the year.

    Number of sales units ...

    Solution Summary

    This solution illustrates how to perform break-even analysis and sensitivity analysis using a knowledge of cost-volume-profit relationships.

    $2.19

    ADVERTISEMENT