1. XYZ Company produced and sold 70,000 backpacks during the year just ended at

Question

1. XYZ Company produced and sold 70,000 backpacks during the year just ended at an average price of $30 per unit. Variable manufacturing cost were 12 per unit and variable marketing cost were $6 per unit sold. Fixed cost amounted to $540,000 for manufacturing and $216,000 for marketing. There was no year ended work in progress a. Compute the breakeven point in sales dollars and units b. Compute the number of sales units required to earn a net income of $540,000 during 2 the year Assume that variable manufacturing cost is expected to increase by 10% in coming year. Calculate the next year breakeven point in dollars and units If the manufacturing variable cost increased by 10% compute the selling price that would yield the same profit margin ratio in the coming year. If the manufacturing variable cost increased by 10% compute the selling price that would yield the same CM ratio in the coming year. 11 40 0og unite at 180 ner uni

Explanation / Answer

Answer :

a) Breakeven point = breakeven point is the point at which sales cover its expens

Breakeven point in units = Fixed cost / (Price-variable cost)

= ($540,000+216,000)/(30-18)=$756,000/12=63000 units

Breakeven point in dollars= Price multiplied by breakeven sales unit

= 30*63000=$1,890,000

b) Number of sales unit require to earn a net income of $540,000 =

= (fixed expense +540,000)/12= ($756,000+$540,000)/12= 108,000 units

c) variable manufacturing cost increase by 10%

Breakeven point in units =Fixed cost / (Price-variable cost)=$756,000/(30-(12+1.2+6))=$756,000/10.8= 70,000 units

d) profit margin ratio = Net income/ net sales =(2,100,000-840,000-420,000-540,000-216,000)/2,100,000

= 84,000/2,100,000=4%

Let assume the selling price be X and we want the same profit margin ratio in the coming year if the manufacturing variable cost increase by 10%

Profit margin ratio = Net income/Net sales

4/100=(x-(840,000+840,000*10%)-420,000-540,000-216,000))/x

=4x=(x-2,100,000)*100

=4x=100x-210,000,000

=96x=210,000,000

=x= 2,187,500

e) contribution margin ratio= contribution margin per unit/sales price per unit

= 12/30=40%

note:- Contribution margin per unit= sale price per unit- total variable cost per unit

= 30-18=12

Let assume the selling price be x and we like to have the same CM ratio

Contribution margin ratio = contribution margin per unit / sales price per unit

=40/100=(x-(18+12*10%))/x

= 40x=(x-19.2)*100

=60x=1920

=x=1920/60=32

  

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