Question

Techno Designs produces head covers for gulf clubs. The company expects to generate a profit next year. It anticipates fixed manufacturing costs of $126,500; Fixed general and administrative expenses of $82,030 for the year. Variable manufacturing and selling costs per set of head covers will be $4.65 and $2.75, respectively. Each set will sell for $13.40; Required:

Compute the breakeven point in sales units and compute the breakeven point in sales dollars;

Answer 1

The breakeven point for Techno Designs can be found by dividing the total fixed costs by the contribution margin per unit, and then the breakeven point in sales dollars is found by multiplying the breakeven units by the selling price per set.

Step-by-step explanation:

To compute the breakeven point in sales units for Techno Designs, we first need to understand that the breakeven point is when total costs equal total revenues, meaning no profit or loss occurs. The fixed manufacturing costs are $126,500 and the fixed general and administrative costs are $82,030.

The variable costs per set of head covers are the sum of the variable manufacturing costs ($4.65) and the variable selling costs ($2.75), which equals $7.40. With each set selling for $13.40, we calculate the contribution margin per unit as the selling price minus the variable costs, which is $13.40 - $7.40 = $6.00 per set. To find the breakeven point in units, we divide the total fixed costs by the contribution margin per unit, which would be ($126,500 + $82,030) / $6.00 per set.

To find the breakeven point in sales dollars, we multiply the breakeven point in units by the selling price per set. So, after calculating the breakeven point in units, we would multiply that number by $13.40 to get the breakeven point in dollars.