Alex Miller, Inc., sells car batteries to service stations for an average of $30

Question

Alex Miller, Inc., sells car batteries to service stations for an average of $30 each. The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.

Required: a. What is the breakeven point in batteries?

b. What is the margin of safety, assuming sales total $60,000?

c. What is the breakeven level in batteries, assuming variable costs increase by 20%?

d. What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed manufacturing costs decline by 10%, and other fixed costs decline by $100?

calculation..

Explanation / Answer

a. x is break even units. At break even point no profit no loss. so profit is $0.

$30x-$20x - $10,000-$8,000= 0

$10x=$18,000

x =1800 batteries.

b. Margin of safety= actual sales- sales at BEP

=$60,000-($30*1800)

=$6,000

c.New Variable cost = $20*1.2= $24

$30x-$24x - $10,000-$8,000= 0

$6x=$18,000

x=3000 batteries

d. Revised sales price=$30*1.10=$33, Revised fixed cost $10,000*90%=$9000, Revised other fixed cost= $8000-$100 =$7900

$33x-$20x - $9,000-$7900= 0

$13x=$16900

x=1300 batteries

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