Question

Ritchie Manufacturing Company makes a product that it sells for $140 per unit. The company incurs variable manufacturing costs of $61 per unit. Variable selling expenses are $16 per unit, annual fixed manufacturing costs are $380,000, and fixed selling and administrative costs are $281,500 per year Required Determine the break-even point in units and dollars Use the equation method.

Answer 1

The break-even point for Ritchie Manufacturing Company is 10,500 units or $1,470,000 in sales. This is calculated using the contribution margin per unit of $63, considering the total fixed costs of $661,500.

Step-by-step explanation:

To calculate the break-even point in units and dollars using the equation method, we need to know the contribution margin per unit, which is the selling price per unit minus the variable costs per unit. From the Ritchie Manufacturing Company data, we have a selling price of $140 per unit and variable costs (manufacturing and selling) of $61+$16, which equals $77 per unit. The contribution margin per unit is therefore $140 - $77 = $63 per unit.

The break-even point in units is the fixed costs divided by the contribution margin per unit. In this case, the total fixed costs include both manufacturing and selling/administrative, so $380,000 + $281,500 = $661,500. Thus, the break-even point in units is $661,500 / $63, which is approximately 10,500 units (rounded).

To find the break-even point in dollars, we multiply the break-even point in units by the selling price per unit: 10,500 units * $140 = $1,470,000. Therefore, Ritchie Manufacturing must sell approximately $1,470,000 worth of their product to break even.