Managerial Accounting
Managerial Accounting
5th Edition
ISBN: 9781259176494
Author: John J Wild, Ken Shaw Accounting Professor
Publisher: MCGRAW-HILL HIGHER EDUCATION
Question
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Chapter 5, Problem 7QS
To determine

Break-even Point:

The break-even point is the amount of sales that does not result in any loss or profit for a company. It is used for the various cost control goals as it covers the total cost of operation that would be incurred.

To identify: The break-even point.

Expert Solution & Answer
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Explanation of Solution

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sale price per unit is $90.
The variable cost per unit is $36.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $90 for sales per unit and $36 for variable cost per unit.

    Contributionmarginperunit=$90$36 =$54 ................ (1)

The contribution margin per unit is $54.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $54. (Calculated in equation (1))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $54 for contribution margin per unit.

    Break-evenpoint= $162,000 $54 =3,000units

Hence, the break-even point is 3,000 units.

1. Total fixed cost increased to $190,000.

In order to calculate the break- even point, contribution margin needs to calculate.

The fixed cost is $190,000. (Given)
The contribution margin per unit is $54. (Calculated in equation (1))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $190,000 for fixed cost and $54 for contribution margin per unit.

    Break-evenpoint= $190,000 $54 =3,519units

Hence, the break-even point is 3,519 units. As the break-even point has increased the answer will be (I).

2. Variable cost decrease to $34.

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sale price per unit is $90.
The variable cost per unit is $34.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $90 for sales per unit and $34 for variable cost per unit.

    Contributionmarginperunit=$90$34 =$56 ................. (2)

The contribution margin per unit is $56.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $56. (Calculated in equation (2))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $56 for contribution margin per unit.

    Break-evenpoint= $162,000 $56 =2,893units

Hence, the break-even point is 2,893 units. As the break-even point has increased the answer will be (D).

3. Selling price per unit decrease to $80.

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sales per unit is $80.
The variable cost per unit is $36.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $80 for sales per unit and $36 for variable cost per unit.

    Contributionmarginperunit=$80$36 =$44 ................... (3)

The contribution margin per unit is $44.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $44. (Calculated in equation (3))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $44 for contribution margin per unit.

    Break-evenpoint= $162,000 $44 =3,682units

Hence, the break-even point is 3,682 units. As the break-even point has increased the answer will be (I).

4. Variable cost increased to $67.

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sales per unit is $90.
The variable cost per unit is $67.

Formula to calculate the contribution margin,

    Contributionmarginperunit=SalesperunitVariablecostperunit

Substitute $90 for sales per unit and $67 for variable cost per unit.

    Contributionmarginperunit=$90$67 =$23 .................... (4)

The contribution margin per unit is $23.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $23. (Calculated in equation (4))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $23 for contribution margin per unit.

    Break-evenpoint= $162,000 $23 =7,044units

Hence, the break-even point is 7,044 units. As the break-even point has increased the answer will be (I).

5. Total fixed cost decreased to $150,000.

In order to calculate the break- even point, contribution margin needs to calculate.

The fixed cost is $150,000. (Given)
The contribution margin per unit is $54. (Calculated in equation (1))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $150,000 for fixed cost and $54 for contribution margin per unit.

    Break-evenpoint= $150,000 $54 =2,778units

Hence, the break-even point is 2,778 units. As the break-even point has increased the answer will be (D).

6. Selling price increased to $120

In order to calculate the break- even point, contribution margin needs to calculate.

Given,

The sale price per unit is $120.
The variable cost per unit is $36.

Formula to calculate the contribution margin,

    Contributionmarginmperunit=SalesperunitVariablecostperunit

Substitute $120 for sales per unit and $36 for variable cost per unit.

    Contributionmarginperunit=$120$36 =$84 ............ (5)

The contribution margin per unit is $84.

The fixed cost is $162,000. (Given)
The contribution margin per unit is $44. (Calculated in equation (5))

Formula to calculate the break-even point,

    Break-evenpoint= Fixedcost Contributionmarginperunit

Substitute $162,000 for fixed cost and $84 for contribution margin per unit.

    Break-evenpoint= $162,000 $84 =1,929units

Hence, the break-even point is 1,929 units. As the break-even point has increased the answer will be (D).

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Chapter 5 Solutions

Managerial Accounting

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