Question

Dannica Corporation produces products that it sells for $40 each. Variable costs per unit are $25, and annual fixed costs are $360,000. Dannica desires to earn a profit of $150,000. Required Use the equation method to determine the break-even point in units and dollars. Determine the sales volume in units and dollars required to earn the desired profit.

Answer 1

The break-even point in units and dollars is 24,000 units and $960,000 respectively.

The sales volume in units and dollars required to earn the desired profit is 34,000 units and $1,360,000 respectively.

Step-by-step explanation:

The formula to compute the break even point in units and dollars is shown below:

Break even point in units = (Fixed expenses ) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $40 - $25

= $15

And, the fixed expenses is $360,000

Now put these values to the above formula

So, the value would equal to

= $360,000 ÷ $15

= 24,000 units

Break even point in dollars = (Fixed expenses) ÷ (Profit volume Ratio)

where Profit volume ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100

So, the Profit volume ratio = ($15) ÷ ($40) × 100 = 37.50%

And, the fixed expenses is $360,000

Now put these values to the above formula

So, the value would equal to

= $360,000 ÷ 37.50%

= $960,000

For desired profits

Sales volume in units = (Fixed expenses + desired profit ) ÷ (Contribution margin per unit)

= ($360,000 + $150,000)÷ $15

= 34,000 units

Sales volume in dollars = (Fixed expenses + desired profit ) ÷ (Profit volume ratio)

= ($360,000 + $150,000) ÷ 37.50%

= $1,360,000