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Calculating CM, break even sales and operating profits

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Howard Beal co. manufactures molds for casting aluminum alloy test samples. Fixed costs amount to $20,000 per year. Variable costs for each unit manufactured are $16. Sales price per unit is $28.

a. What is the contribution margin of the product?
b. Calculate the break-even point in unit sales and dollars.
c. What is the operating profit (loss) if the company manufactures and sells:
(i) 1,500 units per year?
(ii) 3,000 units per year?

d. Plot a break-even chart using the foregoing figures.

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Solution Summary

Solution describes the steps to calculate contribution margin, break even sales and operating profit.

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Please refer attached file for graph.

Solution

a. What is the contribution margin of the product?

Contribution Margin=Sales Price-Variable Cost
Sale Price=$28.00
Variable Cost=$16.00
Contribution Margin=$12.00

b. Calculate the break even point in unit sales and dollars

Break even Sales in units=Fixed Costs/Contribution Margin
Fixed ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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