Question

Mitchell Company sells its product for $100 per unit. The company's accountant provided the following cost information:Manufacturing costs $25,000 + 45% of salesSelling costs $15,000 + 20% of salesAdministrative costs $25,000 + 10% of sales What is the company's break-even point in units?

Answer 1

The break-even point for Mitchell Company is calculated by dividing the total fixed costs of $65,000 by the contribution margin per unit, which is $25 after accounting for variable costs. This results in a break-even point of 2600 units.

Step-by-step explanation:

The break-even point in units is calculated as the total fixed costs divided by the contribution margin per unit. To compute the total fixed costs, we sum the fixed manufacturing costs, fixed selling costs, and fixed administrative costs. For the Mitchell Company, this totals to $25,000 (manufacturing) + $15,000 (selling) + $25,000 (administrative) = $65,000 in fixed costs.

Next, we determine the contribution margin per unit, which is the selling price minus variable costs per unit. The variable costs include 45% of sales for manufacturing, 20% of sales for selling, and 10% of sales for administrative expenses. Therefore, the variable costs amount to 45% + 20% + 10% = 75% of $100, which equals $75.

The contribution margin per unit is thus $100 - $75 = $25 per unit.

Finally, we calculate the break-even point in units by dividing total fixed costs by contribution margin per unit, resulting in $65,000 / $25 = 2600 units.

Answer 2

Break-even point= 2600 units

Step-by-step explanation:

The break-even point refers to the units necessary to cover a company's total amount of fixed and variable expenses during a specified period of time.

The formula to calculate the break-even point is the following:

break-even point= fixed costs/contribution margin

Contribution Margin: The contribution margin is a product's price minus all associated variable costs (sales- variable costs), resulting in the incremental profit earned for each unit sold.

Fixed costs: A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.

In this case:

Contribution margin= $100 - (45+20+10)= $25

Fixed Costs= 25000+15000+25000= $65000

Break-even point= 65000/25= 2600 units