Question

Break-Even in Units and Sales Dollars, Margin of Safety Aubrey Company produces a single product. Last year's income statement is as follows:

Sales (22,000 units) $1,359,600
Less: Variable costs 921,800
Contribution margin $437,800
Less: Fixed costs 285,700
Operating income $152, 100
Required:
1. Compute the break-even point in units and sales revenue. In your computations, round the contribution margin per unit to the nearest cent and round the contribution margin ratio to four decimal places. Round your final answers to the nearest whole unit or dollar.
Break-even units units
Break-even dollars

Answer 1

The break-even point for Aubrey Company is 14,371 units and $887,944 in sales revenue. This is calculated using the fixed costs, variable costs per unit, total sales, and the contribution margin ratio.

Step-by-step explanation:

We are tasked with finding the break-even point for Aubrey Company in both units and sales revenue. To determine the break-even point in units, we need to divide the company's total fixed costs by the contribution margin per unit. The contribution margin per unit is the sales price per unit minus the variable cost per unit. Similarly, to find the break-even point in sales revenue, we use the contribution margin ratio, which is the contribution margin per unit divided by the sales price per unit.

The income statement shows that Aubrey Company sold 22,000 units for a total of $1,359,600, which means the sales price per unit is $1,359,600 / 22,000 units = $61.80 per unit. The total variable costs were $921,800, so the variable cost per unit is $921,800 / 22,000 units = $41.90 per unit.

The contribution margin per unit is therefore $61.80 - $41.90 = $19.90. The fixed costs are $285,700. So, the break-even units are $285,700 / $19.90 = 14,371 units, rounded to the nearest whole unit.

Next, the contribution margin ratio is $19.90 / $61.80 = 0.3218, rounded to four decimal places. The break-even dollars are therefore $285,700 / 0.3218 = $887,944, again rounded to the nearest whole dollar.