Hawke Caribbean Sales has developed the following projections for the upcoming y
ID: 2527262 • Letter: H
Question
Hawke Caribbean Sales has developed the following projections for the upcoming year of operations.
Sales of 100,000 units at $5
Units sold equal units produced
Variable costs for 100,000 units:
Direct material
$125,000
Direct labor
100,000
Variable overhead
30,000
Selling and administrative expense
45,000
Total fixed costs
120,000
What is Hawke’s projected breakeven point in dollars?
$500,000
$120,000
$130,000
$300,000
Sales of 100,000 units at $5
Units sold equal units produced
Variable costs for 100,000 units:
Direct material
$125,000
Direct labor
100,000
Variable overhead
30,000
Selling and administrative expense
45,000
Total fixed costs
120,000
Explanation / Answer
Solution: Answer d $300,000
It should be noted that the break-even point in dollars is calculated by dividing a company's fixed expenses by the company's contribution margin ratio.
We are already provided with total fixed expenses in the question.
Let's compute Contribution Margin ratio:
Contribution = Sales - Variable Costs
Contribution Margin Ratio:
Break-even point in dollars = Fixed Cost/ Contribution Margin Ratio
= 120,000 / 40%
= 300,000
We can concluade here that $2 of contribution will be made per unit and the same is available to pay a current fixed cost of $120,000. While the same contribution can be earned to pay a fixed cost of upto $300,000 which will result in no profit no loss.
Particulars Per Unit Calculation Sales 5 Less: Variable Costs: Direct Material 1.25 (125000/100000) Direct Labor 1 (100000/100000) variable Overhead 0.3 (30000/100000) Saelling & administrative cost 0.45 (45000/100000) Net Contribution 2 Contribution Margin Ratio 40.0% Net Contribution / Sales *100Related Questions
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