# 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.