Question

Guthrie Industries manufactures and sells dog collars. The collars sell for $12 each. Information about the company’s costs is as follows.

Variable manufacturing cost per unit $ 2
Variable selling and administrative cost per unit 1
Fixed manufacturing overhead per month $250,000
Fixed selling and administrative cost per month 200,000
a. Determine the company’s monthly break-even point in units.

Answer 1

To determine the company's monthly break-even point in units, calculate the contribution margin per unit and then divide the fixed costs by the contribution margin per unit.

Step-by-step explanation:

To determine the company's monthly break-even point in units, we need to calculate the contribution margin per unit. The contribution margin is the difference between the selling price and the variable costs per unit.

In this case, the variable manufacturing cost per unit is $2 and the variable selling and administrative cost per unit is $1. So, the contribution margin per unit is $12 - ($2 + $1) = $9.

The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit.

Given that the fixed manufacturing overhead per month is $250,000 and the fixed selling and administrative cost per month is $200,000, the total fixed costs per month are $250,000 + $200,000 = $450,000.

The break-even point in units is $450,000 / $9 = 50,000 units.