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# Cost-Volume-Profit Analysis

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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 \$

#### 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.

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