Question

Crane Corporation has collected the following information after its first year of sales. Sales were $1,890,000 on 126,000 units; selling expenses $315,000 (40% variable and 60% fixed); direct materials $643,860; direct labor $365,400; administrative expenses $340,200 (20% variable and 80% fixed); and manufacturing overhead $441,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Contribution margin for current year is $378,000 for projected year $415800 and the fixed costs for the current year is $593460 break even point in units is 197820 units, what is the break even point in dollars?

Answer 1

To find the break-even point in dollars, you need to calculate the break-even point in units and multiply it by the selling price per unit. However, the selling price per unit is not provided, so we cannot calculate the break-even point in dollars.

Step-by-step explanation:

To determine the break-even point in dollars, one must first calculate the break-even point in units and then multiply it by the selling price per unit. The break-even point in units is found using the formula:

Break-even point (in units) = Fixed costs / Contribution margin per unit

Given that the break-even point in units is specified as 197,820 units, it indicates the quantity of units that need to be sold to cover fixed costs and reach the break-even level. However, without knowledge of the selling price per unit, it is impossible to ascertain the break-even point in dollars.

The selling price per unit is a critical factor as it directly influences the revenue generated for each unit sold. To calculate the break-even point in dollars, one would multiply the break-even point in units by the selling price per unit. The absence of the selling price in this scenario prohibits the computation of the break-even point in dollars.

In practical terms, understanding the break-even point is vital for businesses as it delineates the level of sales needed to cover both fixed and variable costs. The break-even analysis forms a foundational aspect of financial planning, aiding businesses in setting pricing strategies and making informed decisions about production and sales targets.