1. Breakeven analysis Bogamill Corp. currently has annual fixed costs of $1,200,
ID: 2653442 • Letter: 1
Question
1. Breakeven analysis Bogamill Corp. currently has annual fixed costs of $1,200,000. Bogamill manufactures only one product, which it sells at a price of $4.65 per unit. The product's variable cost per unit is $3.40. How many units must Bogamill sell for its operations to break even? 1,111,111 units 960,000 units 909,091 units 1,272,727 units 1,000,000 units Suppose the firm's CFO wants the firm to generate operating income (EBIT) of $1,500,000. How many units must the firm sell? 2,454,545 units 2,240,000 units 2,777,778 units 2,160,000 units 2,545,455 units Bogamill's marketing and sales director doesn?t think the market for the firm's goods is big enough to sell enough units to make the profit the CFO wants. In fact, she thinks the firm will be able to sell only about 1,800,000 units. However, she thinks the demand for Bogamill's products is relatively inelastic and so the firm can increase the sales price. Assuming the firm can sell 1,800,000 units, what price must it set to meet the CFO's EBIT goal ($1,500,000)? $4.90 $4.70 $4.85 $4.75 $5.10Explanation / Answer
Break even level= fixed cost/ selling price - variable cost
1. 1,200,000/4.65- 3.4= 1,200,000/ 1.25= 960,000
if they expected an operating income of $1,500,000 then it should produce:
= 1,200,000+1,500,000/1.25= 2,700,000/1.25= 2,160,000 units
to meet CFO goal to generate $1,500,000, the selling price should be
$4.90 is correct answer
= 2,700,000/4.9-3.4= 1,800,000 units
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