Question

Sunland manufacturing ltd. has provided you with the following cvp income statement:

sales (5,400 units) $1,080,000 $200 per unit
variable costs 648,000 120 perunit
contribution margin 432,000 $80 perunit
fixed costs 376,000
operating income $56,000
management is considering the following course of action to increase operating income: reduce the selling price by 20%, with no changes to unit variable costs or fixed costs. management feels that this change will increase unit sales by 30%.
calculate the break-even point in units and sales dollars with no change in sales. (round contribution margin ratio to 5 decimal places, e.g. 15.22456%. round units to 0 decimal places, e.g. 5,275 and dollar amount to 2 decimal places, e.g. 15.25.)

Answer 1

To calculate the break-even point, we need to determine the contribution margin ratio and then apply it to fixed costs. The break-even point in units is 940,000 and in sales dollars is $188,000,000.

Step-by-step explanation:

To calculate the break-even point in units and sales dollars with no change in sales, we first need to determine the contribution margin ratio. The contribution margin ratio is the ratio of contribution margin (CM) to sales. In this case, the CM is $80 per unit and the sales are $1,080,000. Therefore, the contribution margin ratio is:

Contribution Margin Ratio = CM / Sales = $80 / $200 = 0.4

The break-even point in units can be calculated using the formula:

Break-even Point in Units = Fixed Costs / Contribution Margin Ratio = $376,000 / 0.4 = 940,000

Similarly, the break-even point in sales dollars can be calculated using the formula:

Break-even Point in Sales Dollars = Break-even Point in Units * Selling Price = 940,000 * $200 = $188,000,000