Purchase Solution

Managerial Accounting: Break Even Point Analysis

Not what you're looking for?

Ask Custom Question

Please see attachment.

MSW:4-1
Cost-volume-profit analysis. Patton Company produces one type of sunglasses with the following costs and revenues for the year:
Total Revenues $6,000,000
Total Fixed Costs $2,000,000
Total Variable Costs $2,000,000
Total Quantity Produced and Sold 100,000 Units

Required:
a. What is the selling price per unit?
b. What is the variable cost per unit?
c. What is the contribution margin per unit?
d. What is the break-even point in units?
e. Assume an income-tax rate of 40 percent. Assuming a relevant range, what quantity of units is required for Patton Company to make an after-tax operating profit of $6,000,000 for the year?

MSW:4-2
Break-even and target profits; volume defined in sales dollars. The manager of Hsu's Carryout Express estimates operating costs for the year will total $230,000 for fixed costs.

Required:

a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
b. Find the break-even point in sales dollars with a contribution margin ratio of 20 percent.
c. Find the sales dollars required with a contribution margin ratio of 50 percent to generate a profit of $150,000.

MSW:4-3
CVP analysis with step costs. Techniques Company has one product: customized thumb drives with logos for various businesses. The sales price of $18 remains constant per unit regardless of volume, as does the variable cost of $10 per unit. The company is considering operating at one of the following three monthly levels of operations:

Volume Range
(production and sales) Total
Fixed Costs Increase in Fixed Costs from
Previous Level
Level 1 0-5,000 $ 30,000 --
Level 2 5,001-15,000 50,000 $20,000
Level 3 15,001-30,000 80,000 30,000

Required:

a. Calculate the break-even point(s) in units.
b. If the company can sell everything it makes, should it operate at level 1, level 2, or level 3? Support your answer.

MSW:4-4 Genia Enterprises, Inc. has the capacity to produce 12,000 units per year. Expected operations for the year are

Sales (10,000 units @ $20) $200,000
Manufacturing costs:
Variable $8 per unit
Fixed $40,000
Marketing and administrative costs:
Variable $3 per unit
Fixed $20,000
REQUIRED:
a. What is the expected level of operating profits?
b. Should the company accept a special order for 1,000 units at a selling price of $15 if variable marketing expenses associated with this special order would be $2 per unit? Calculate the incremental profits if the order is accepted.
c. Suppose the company received a special order for 3,000 units at a selling price of $15 with no variable marketing expenses. Calculate the impact on operating profits.

Purchase this Solution

Solution Summary

Managerial accounting for break even point analysis are provided. The cost-volume-profit analysis for Patton Company is examined.

Solution Preview

MSW:4-1
Cost-volume-profit analysis. Patton Company produces one type of sunglasses with the following costs and revenues for the year:
Total Revenues $6,000,000
Total Fixed Costs $2,000,000
Total Variable Costs $2,000,000
Total Quantity Produced and Sold 100,000 Units

Required:
a. What is the selling price per unit?
Selling price per unit = Total revenues/Quantity sold
 $6,000,000/100,000 units
 $60 per unit

b. What is the variable cost per unit?
Variable cost per unit = Total variable costs/Quantity produced
 $2,000,000/100,000 units
 $20 per unit

c. What is the contribution margin per unit?
Contribution margin per unit = Selling price per unit - Variable cost per unit
 $60 - $20
 $40 per unit

d. What is the break-even point in units?
Break-even point in units = Total fixed costs/Contribution margin per unit
 $2,000,000/$40
 50,000 units

e. Assume an income-tax rate of 40 percent. Assuming a relevant range, what quantity of units is required for Patton Company to make an after-tax operating profit of $6,000,000 for the year?
Step 1: We have to first find the before-tax operating profit required to meet this target.
Before-tax operating profit = After-tax operating profit/ [1 - Tax rate]
 $6,000,000/ [1 - .40]
 $10,000,000
Step 2: To find the target quantity
Target units = [Fixed costs + Before tax operating profit required]/Contribution margin per unit
 [$2,000,000 + $10,000,000]/$40
 300,000 units

MSW:4-2
Break-even and target profits; volume defined in sales dollars. The manager of Hsu's Carryout Express estimates operating costs for the year will total $230,000 for fixed costs.

Required:

a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
Break-even point in sales dollars = Fixed costs/Contribution margin ratio
 $230,000/.40
 $575,000

b. Find the break-even point in ...

Solution provided by:
Education
  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
Recent Feedback
  • "Great explanations on how the answers were obtained."
  • "Love the way she explains everything step by step."
  • "Solutions were thoroughly explained."
  • "Excellent explanations of how problems are solved"
  • "Thanks"
Purchase this Solution


Free BrainMass Quizzes
Lean your Process

This quiz will help you understand the basic concepts of Lean.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.