Feltan Company operated at normal capacity during the current year, producing 64

Question

Feltan Company operated at normal capacity during the current year, producing 64,000 units of its single product. Sales totalled 54,000 units at an average price of $25 per unit. Variable manufacturing costs were $9 per unit, and variable marketing costs were $4 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $174,000 for manufacturing and $78,000 for marketing. There was no year-end work-in-process inventory. Required: 1. What is Feltan’s break-even point in sales dollars for the current year? (Do not round intermediate calculations.) 2. If Feltan’s variable manufacturing costs unexpectedly increase by 10%, what is the new unit selling price that would yield the same contribution margin ratio as before the cost increase? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Explanation / Answer

Existing $/unit Sale Price 25 Less:- Variable Mfg Cost 9 Less:- Variable Mkt Cost 4 Contribution margin 12 Contribution margin ratio% 48% Total Fixed Cost $ Manufacturing cost          174,000 Marketing cost            78,000 Total Fixed Cost          252,000 Break even Sales Value in $ Break even sales in Unit = Fixed Cost/Contribution per unit Break even sales in unit = $252000/12 = 21000 Units Break even points in Sales = 21000 units X $ 25 per unit = $ 525000. New Selling price Existing new after increase in 10% of Variable Mfg cost $/unit $/unit Sale Price 25                               26.73 Less:- Variable Mfg Cost 9 9.9 Less:- Variable Mkt Cost 4 4 total Variable Cost 13 13.9 Contribution margin 12 12.83 Contribution margin ratio% 48% 48% Let Sales price = X Variable Cost after increase in 10% of variable mfg cost = $ 13.9 Contribution margin = x-13.9 Contribution margin % = (x-13.9)/x 0.48 = (x-13.9)/x 0.52x = 13.9 x= 13.9/0.52 x= 26.73 therefore new selling price per unit = $ 26.73

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