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 $
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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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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 ...
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