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California Container division: Calculate volume at old and new break even

You received an email from Carl the operations manager for the California Container division. They produce packaging for cell phones. Carl understands that his product is an important cash producer for the company.

The delivery price is based on long term contracts.
The price of the supply of cardboard has increased due to a .15 fuel surcharge added to the cost.
Carl has a fixed monthly cost of $257,000 and delivers 3.3 million packages in the same time period for a price of $3.24.
The variable cost of the previous package was a $1.37

Provide the following information to Carl in an e-mail:

At what volume was the old break-even and what is the new break-even?

In order to make the same profit how many more packages needs to be produced?

Solution Preview


It is noticed that the selling price of the cardboard is increased because of the .15 increase in fuel surcharge of the product.

It is necessary to know the breakeven volume under both the circumstances then only it is easy to control the costs in such a way that the company will not incur the loss.

Formula for the breakeven point (in volume)=fixed costs/contribution per unit
Contribution per unit= selling price per unit-variable cost per unit

Solution Summary

This solution provides the following formulas and calculations for each: breakeven point, new and old contribution per unit, new variable cost per unit, new break even sales volume, present profit derived from a marginal cost statement of old and new profits, and the number of units to be produced to maintain the same profit leading to the calculations for the additional units to be produced.