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# Breakeven Pricing and Analysis

Vineet,

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.

B

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
Total Costs of goods produced \$210,000
Gross Margin \$ 30,000
Selling (Fixed) \$24,000
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.

\$2.19