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Business Accounting MANAGERIAL ACCT W/CONNECT >IC<

Break Even Point: The main objective of running a business is profit. A management has to budget and plan the quantity of sales, its cost and expenses in advance so as to achieve the profit objective. Not every business can earn the desired profit in the initial years of operation. But to make the business viable, it has to earn so much of revenue as is needed to at least cover its fixed overhead/ fixed expenses. Fixed overheads are those expenses/cost that are incurred irrespective of whether production is being done or not. For eg. rent for plant & machinery, property taxes are fixed overheads. Hence, break-even point is defined as that quantity/amount of sales required to be made in order to earn a contribution that equals the fixed cost. Contribution is nothing but sales less variable cost incurred to produce the quantity sold. Generally break-even point is calculated as Contribution Margin Ratio: Contribution margin ratio measures the percentage of sales dollars that exceed variable costs which can cover the fixed costs of the business. 1. To compute: The break-even point in unit sales using the equation method Solution: 1. Break-even point in unit sales using the equation method Where X = Break-even point units FC = Fixed cost P = Price per unit V = Variable cost per unit Break-even point in unit sales = 1,400 units 2. To compute: The break-even point in dollar sales using the equation method and the CM ratio Solution: Where P = Price per unit, X = Break-even point units Break-even point in dollar sales = 1,400 x $15 = $21,000 Where, P = Price per unit, V = Variable cost per unit Contribution margin ratio = 0.2 or 20% 3. To compute: The break-even point in unit sales using the formula method Solution: Break-even point in unit sales = Contribution per unit = Selling price per unit − Variable cost per unit Contribution per unit = $15 - $12 = $3 Therefore, Break-even point in unit sales = 1,400 units 4. To compute: The break-even point in dollar sales using the formula method and the CM ratio Solution: Break-even point in dollar sales = $21,000 =$4,200/$21,000 = 0.2 Contribution margin ratio (formula method) = 0.2 or 20%

Break Even Point: The main objective of running a business is profit. A management has to budget and plan the quantity of sales, its cost and expenses in advance so as to achieve the profit objective. Not every business can earn the desired profit in the initial years of operation. But to make the business viable, it has to earn so much of revenue as is needed to at least cover its fixed overhead/ fixed expenses. Fixed overheads are those expenses/cost that are incurred irrespective of whether production is being done or not. For eg. rent for plant & machinery, property taxes are fixed overheads. Hence, break-even point is defined as that quantity/amount of sales required to be made in order to earn a contribution that equals the fixed cost. Contribution is nothing but sales less variable cost incurred to produce the quantity sold. Generally break-even point is calculated as Contribution Margin Ratio: Contribution margin ratio measures the percentage of sales dollars that exceed variable costs which can cover the fixed costs of the business. 1. To compute: The break-even point in unit sales using the equation method Solution: 1. Break-even point in unit sales using the equation method Where X = Break-even point units FC = Fixed cost P = Price per unit V = Variable cost per unit Break-even point in unit sales = 1,400 units 2. To compute: The break-even point in dollar sales using the equation method and the CM ratio Solution: Where P = Price per unit, X = Break-even point units Break-even point in dollar sales = 1,400 x $15 = $21,000 Where, P = Price per unit, V = Variable cost per unit Contribution margin ratio = 0.2 or 20% 3. To compute: The break-even point in unit sales using the formula method Solution: Break-even point in unit sales = Contribution per unit = Selling price per unit − Variable cost per unit Contribution per unit = $15 - $12 = $3 Therefore, Break-even point in unit sales = 1,400 units 4. To compute: The break-even point in dollar sales using the formula method and the CM ratio Solution: Break-even point in dollar sales = $21,000 =$4,200/$21,000 = 0.2 Contribution margin ratio (formula method) = 0.2 or 20%

MANAGERIAL ACCT W/CONNECT >IC<

MANAGERIAL ACCT W/CONNECT >IC<

15th Edition

ISBN: 9781259405303

Author: Garrison

Publisher: MCG

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Chapter 5 Solutions

MANAGERIAL ACCT W/CONNECT >IC<

Ch. 5 - Prob. 1Q Ch. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3Q Ch. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7Q Ch. 5 - Prob. 8Q Ch. 5 - Prob. 9Q Ch. 5 - Prob. 1AE

Ch. 5 - Prob. 2AE Ch. 5 - Prob. 3AE Ch. 5 - Prob. 4AE Ch. 5 - Prob. 5AE Ch. 5 - Prob. 1F15 Ch. 5 - Prob. 2F15 Ch. 5 - Prob. 3F15 Ch. 5 - Prob. 4F15 Ch. 5 - Prob. 5F15 Ch. 5 - Prob. 6F15 Ch. 5 - Prob. 7F15 Ch. 5 - Prob. 8F15 Ch. 5 - Prob. 9F15 Ch. 5 - Prob. 10F15 Ch. 5 - Prob. 11F15 Ch. 5 - Prob. 12F15 Ch. 5 - Prob. 13F15 Ch. 5 - Prob. 14F15 Ch. 5 - Prob. 15F15 Ch. 5 - Prob. 1E Ch. 5 - Prob. 2E Ch. 5 - Prob. 3E Ch. 5 - Prob. 4E Ch. 5 - Prob. 5E Ch. 5 - Prob. 6E Ch. 5 - Prob. 7E Ch. 5 - Prob. 8E Ch. 5 - Prob. 9E Ch. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11E Ch. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14E Ch. 5 - Prob. 15E Ch. 5 - Prob. 16E Ch. 5 - Prob. 17E Ch. 5 - Prob. 18E Ch. 5 - Prob. 19P Ch. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22P Ch. 5 - Prob. 23P Ch. 5 - Prob. 24P Ch. 5 - PROBLEM 5-25 Changes in Fixed and Variable Costs;...Ch. 5 - PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27P Ch. 5 - Prob. 28P Ch. 5 - Prob. 29P Ch. 5 - Prob. 30P Ch. 5 - PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 - CASE 5-32 Break-Even Analysis for Individual...Ch. 5 - Prob. 33C

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