Fundamental Managerial Accounting Concepts
Fundamental Managerial Accounting Concepts
7th Edition
ISBN: 9780078025655
Author: Thomas P Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip R Olds
Publisher: MCGRAW-HILL HIGHER EDUCATION
Question
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Chapter 3, Problem 17PSA

a.

To determine

Calculate the break-even points using the equation method.

a.

Expert Solution
Check Mark

Explanation of Solution

The calculation of break-even in units is as follows:

SalesVariable costFixed cost=Profit(Sales price×N)(Variable cost per unit×N)=Fixed cost+Profit(Contribution margin per unit×N)=Fixed cost+ProfitN=Fixed cost+ProfitContribution margin per unit

N=((Fixed cost (manufacturimg)+Fixed cost (administrative))+profit)Contribution margin per unit=(($240,000+$165,000)+$0)36 (1)=$405,00036 =11,250 units

Hence, the break-even units is 11,250 units.

The calculation of break-even point in dollars is as follows:

Break-even in dollars=Break-even units×Sales price=11,250×$75 per unit=$843,750

Hence, the break-even in dollars is $843,750.

Note:

N denote number of units to break-even.

Working note:

The calculation of contribution margin is as follows:

Contribution margin=(Sales price(Variable cost(manufacturimg)+Variable cost(administrative)))=$75($30+$9)=$36

Hence, the contribution margin is $36.

…… (1)

b.

To determine

Calculate the break-even point in dollars and units using contribution margin per unit approach.

b.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales in units is as follows:

Number of units to break-even=Fixed cost (manufacturimg)+Fixed cost (administrative)Contribution margin per unit=$240,000+$165,00036 (1)=$405,00036 =11,250 units

Hence, the break-even units is 11,250 units.

The calculation of sales in dollars is as follows:

Break-even in dollars=Break-even units×Sales price=11,250×$75 per unit=$843,750

Hence, the sales in dollars is $843,750.

c.

To determine

Calculate the break-even points in dollars and units using contribution margin ratio approach.

c.

Expert Solution
Check Mark

Explanation of Solution

The calculation of break even in dollars is as follows:

Break-even in dollars=Fixed cost (manufacturimg)+Fixed cost (administrative)Contribution margin ratio =$240,000+$165,00048% (2)=$405,00048% =$843,750

Hence, the break-even in dollars is $843,750.

The calculation of break even in units is as follows:

Break-even in units=Break-even in dollarsSales price=$843,750$75=11,250 units

Hence, the break-even in units is 11,250 units.

Working note:

The calculation of break-even dollars is as follows:

        Contribution margin ratio=Contribution margin per unitSales price=$36(1)$75=48%

Hence, the contribution margin ratio is 48%.

…… (2)

d.

To determine

Calculate the contribution margin income statement for break-even sales volume to confirm the result.

d.

Expert Solution
Check Mark

Explanation of Solution

The calculation of contribution margin income statement is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 17PSA

Table (1)

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Chapter 3 Solutions

Fundamental Managerial Accounting Concepts

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