Fundamental Managerial Accounting Concepts
Fundamental Managerial Accounting Concepts
8th Edition
ISBN: 9781259569197
Author: Thomas P Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 18PSB

a)

To determine

The break-even point in dollars and in units.

a)

Expert Solution
Check Mark

Answer to Problem 18PSB

The break-even point in dollars and in units are $1,800,000 and 45,000 units respectively.

Explanation of Solution

Formula to compute the break-even in dollars:

Break-even=Fixed costsContribution margin ratio

Compute the break-even in dollars:

Break-even=Fixed costsContribution margin ratio=$540,0000.30=$1,800,000

Hence, the break-even in dollars is $1,800,000.

Formula to compute the break-even in units:

Break-even units=Break-even in dollarSales price

Compute the break-even in units:

Break-even units=Break-even in dollarSales price=$1,800,00040=45,000

Hence, the break-even in units is 45,000.

b)

To determine

The amount of sales in dollars and in units, to gain $90,000 profit.

b)

Expert Solution
Check Mark

Answer to Problem 18PSB

The amount of sales in dollars and in units, to gain $270,000 profit are $2,100,000 and 52,500 units.

Explanation of Solution

Formula to compute the sales in dollars:

Sales in dollar=(Fixed costs+Desired profit)Contribution margin ratio

Compute the sales in dollars:

Sales in dollar=(Fixed costs+Desired profit)Contribution margin ratio=($540,000+$90,000)0.30=$2,100,000

Hence, the amount of sales in dollar is $2,100,000.

Formula to compute the sales in units:

Sales in units=Sales in dollarsSales price

Compute the sales in units:

Sales in units=Sales in dollarsSales price=$2,100,00040=52,500

Hence, the sales in units is 52,500.

c)

To determine

The new break-even points in dollars and in units.

c)

Expert Solution
Check Mark

Answer to Problem 18PSB

The new break-even points in dollars and in units are $1,227,273 and 24,545 units.

Explanation of Solution

Formula to compute the variable cost:

Variable cost=[Sales price×(1Contribution margin ratio)]

Compute the variable cost:

Variable cost=[Sales price×(1Contribution margin ratio)]=$40×(10.30)=$40×0.70=$28 per unit

Hence, the variable cost is $28 per unit.

Formula to compute the per unit contribution margin:

Contribution margin per unit=Increase in the sale priceVariable cost

Compute the per unit contribution margin:

Contribution margin per unit=Increase in the sale priceVariable cost=$50$28=$22

Hence, the contribution margin per unit is $22.

Formula to compute the new contribution margin ratio:

New contribution margin ratio=Contribution margin per unitIncrease in sales price

Compute the new contribution margin ratio:

New contribution margin ratio=Contribution margin per unitIncrease in sales price=$22$50=0.44

Hence, the new contribution margin ratio is 0.44.

Formula to compute the break-even in dollars:

Break-even=Fixed costsContribution margin ratio

Compute the break-even in dollars:

Break-even=Fixed costsContribution margin ratio=$540,0000.44=$1,227,273(rounded)

Hence, the break-even in dollars is $1,227,273.

Formula to compute the break-even in units:

Break-even units=Break-even in dollarsSales price

Compute the break-even in units:

Break-even units=Break-even in dollarsIncrease in sales price=$1,227,27350=24,545(rounded)

Hence, the break-even in units is 24,545.

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Chapter 3 Solutions

Fundamental Managerial Accounting Concepts

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