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    Cost Analysis- Break Even Point

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    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.

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    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