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Cost Analysis- Break Even Point

1. Assume the following cost information for Marie Company:

Selling price per unit $144
Variable costs per unit $80
Total fixed costs $80,000
Tax rate 40%

If fixed costs increased by 10% and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to:

a)$158.40
b)$208.00
c)$150.40
d)$155.20

2. Assume the following cost information for Zachary Company:

Selling price per unit $144
Variable costs per unit $80
Total fixed costs $80,000
Tax rate 40%

________ must be sold to earn an after-tax net income of $40,800.

a)3,700 units
b)2,313 units
c)1,594 units
d)1,063 units

3. Rampart Hospital has total variable costs of 90% of total revenues and fixed costs of $50 million per year. There are 50,000 patient-days estimated for next year. What is the average daily revenue per patient necessary to breakeven?
a)$1,000 is the average daily revenue per patient necessary to breakeven.
b)$4,000 is the average daily revenue per patient necessary to breakeven.
c)$250 is the average daily revenue per patient necessary to breakeven.
d)$10,000 is the average daily revenue per patient necessary to breakeven.

4. ________ is how the activities of an organization affect its costs.
a)Cost behavior
b)Cost driver
c)Volume-related cost drivers
d)None of these answers is correct.

Solution Preview

1. Assume the following cost information for Marie Company:

Selling price per unit $144
Variable costs per unit $80
Total fixed costs $80,000
Tax rate 40%

If fixed costs increased by 10% and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to:

contribution margin in first case = (144-80)=$64
break even point = fixed costs/contribution margin = 80000/64=1250

Now revised fixed costs= 80000*1.1=88000
Contribution margin needed to make same break even = 88000/1250=70.4
Selling price = ...

Solution Summary

Solutions to three basic problems explain the steps needed in calculating break even point and sales needed to achieve a profit target.

$2.19