2. UOP Penn & Pencil Sets, Inc. has fixed costs of $80,000. Its product currently sells for $5 per unit and has variable costs of $2.50 per unit. Mr. Bic, the head of manufacturing, proposes to buy new equipment that will cost $400,000 and drive up fixed costs to $120,000. Although the price will remain at $5 per unit, the increased automation will reduce variable costs per unit to $2.00.

As a result of Bic's suggestion, will the break-even point go up or down? Compute the necessary numbers.

Solution Preview

1. Break Even Point can be calculated by solving for X:
20X = 80,000 + 15X
=> 5X = 80,000
=> X = 16,000

1 (a): The break even point in units will be 16,000
1 ...

Solution Summary

This solution provides a detailed step-by-step explanation of break even analysis shows calculations to determine sales, fixed costs, total variable costs and net profit loss.

What is a break-evenpoint? If an organization's fixed costs increase, what happens to the break-evenpoint? How can the break-evenpoint be lowered? Why is the break-evenanalysis an important tool for management? When evaluating a company, how might this information be used?

What happens at a company's break-evenpoint? How can you compute the break-evenpoint for a company? How can a change in costs for a product or service be incorporated into the break-even calculation?

1. What two pieces of information do you need to know to determine a break-evenpoint?
2. Can you use break-evenanalysis to determine if you can afford to increase your fixed costs?
3. What kind of business decision might cause you to increase your fixed costs?
4. Define variable costs.
5. Will purchasing a new manufact

Winny's Office Furniture has a contribution margin ratio of 16%. If fixed costs are $187,800, how many dollars of revenue must the company generate in order to reach the break-evenpoint?

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 c

A company has total fixed costs of $3,500,000. It sells a product that has variable costs of $3.00. If the product sells for $8.00, how many units must the company sell to breakeven? (show your work)

(a) Break-evenanalysis is of limited use to management because a company cannot survive by just breaking even. Do you agree? Explain.
(b) Total fixed costs are $22,000 for Forrest Inc. It has a contribution margin per unit of $15, and a contribution margin ratio of 25%. Compute the break-even sales in dollars.

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Question 5:
Exercise 5-14: CVP analysis using composite units L.O. P4
Handy Home sells windows and doors in the ratio of 7:1 (windows:doors). The selling price of each window is
$90 and of each door is $240. The variable cost of a window is $62 and of a door is $174. Fixed costs are
$460,000.
Use this infor