Using the Break-Even Equations to Solve for Price and Variable Cost per Unit Sol

Question

Using the Break-Even Equations to Solve for Price and Variable Cost per Unit Solve the following independent problems Required: 1. Andromeda Company's break-even point is 2,400 units. Variable cost per unit is $42; total fixed costs are $67,200 per year. What price does Andromeda charge? 2. Immelt Company charges a price of $6.50; total fixed cost is $314,400 per year, and the break-even point is 131,000 units. What is the variable cost per unit? Feedback Check My Work Prepare contribution margin income statement or set up break-even equation. Solve for unknowns.

Explanation / Answer

Answer

1.

Let Sales = x

Breakeven Point (In Units) = Fixed Cost / Contribution Margin per unit

= Fixed Cost / (Sales – variable Cost per unit)

2,400 Units = $67,200 / (x – 42)

2,400 * (x – 42) = $67,200

(x – 42) = $67,200 / 2,400

X – 42 = $28

X = $70 per Unit

Sales Price = $70 per unit

2.

Let variable Cost = x

Breakeven Point (In Units) = Fixed Cost / Contribution Margin per unit

= Fixed Cost / (Sales – variable Cost per unit)

131,000 Units = $314,400 / ($6.5 - x)

131,000 * (6.5 – x) =$314,400

6.5 – x = $314,400 / 131,000

6.5 – x = 2.4

X = 6.5 – 2.4

X = $4.1

Variable Cost = $4.1 per unit

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