3. Ballard Enterprises sells a product for $100 per unit. The variable cost is $

Question

3. Ballard Enterprises sells a product for $100 per unit. The variable cost is $40 per unit, while fixed costs are $150,000. Required: a. Calculate the contribution margin ratio (round your answer to xxx %). b. Calculate the break-even point in sales units c. Calculate the break-even point in sales dollars or revenues d. How many units need to be sold to generate a pretax income of $60,000? e. Recalculate the break-even point in sales units if the selling price increased to $120 per unit. Round your answer to the nearest whole number.

Explanation / Answer

a. Contribution margin ratio = ($100 - $40) / $100 = 60%

b. Break even point = $150,000 / ($100 - $40) = 2,500 units

c. Break even point in sales dollars = $150,000 / 60% = $250,000

d. Units needed to be sold to earn target profit = ($150,000 + $60,000) / $60 = 3,500 units

e. Break even point = $150,000 / ($120 - $40) = 1,875 units

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