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Breakeven Pricing and Analysis


If you are interested.

I have entered the numbers for the attached problems. I would like to have you review for accuracy and corrections. In addition, I would like your take on question 2 of the attached word document.

As always thanks for your assistance.


Breakeven Pricing and Analysis

McCarthy Company has a plant capacity of 100,000 units per year, but its budget for this year indicates that only 60,000 units will be produced and sold. The budget for this year is:

Sales (60,000 units @ $4 $240,000
Less cost of goods produced (Based on 60,0000 units produced) $60,000
Direct Materials (Variable) $60,000
Direct Labor (Variable) $30,000
Variable overhead costs $45,000
Fixed overhead costs $75,000
Total Costs of goods produced $210,000
Gross Margin $ 30,000
Less Selling and Administrative Expenses
Selling (Fixed) $24,000
Administrative (Fixed) $36,000
Total Selling and Administrative expenses $ 60,000
Operating Income (loss) ($30,000)

1. Given the budgeted selling price and cost data, how many units would need to be sold to breakeven? (Hint: Be sure to consider selling and administrative expenses).

2. Market research indicates that if the selling price was dropped $3.80 per unit, it could sell 100,000 units. Would you recommend the drop in price? What would the new operating income or loss be?


Solution Preview

Please see the attachment. The correction is in the fixed cost. Total fixed cost = ...

Solution Summary

The solution explains how to calculate break-even and if price should be reduced.