Question

Wayne Corrugated, Inc., manufactures folding paperboard boxes from purchased paperboard. They sell these paperboard boxes to meat processing facilities across the Midwest. Wayne Corrugated, Inc., has fixed costs per year of $200,000. They manufacture just one product with a selling price per unit of $5.00 and a variable cost per unit of $1.00. Answer the following questions (you MUST show your work to earn credit). 1. What is the breakeven point in units? 2. What is the breakeven point in sales dollars? 3. If the firm sold 55,000 units last year, what was the margin of safety in units? 4. If the firm sold 55,000 units last year, what profit did it generate? 5. If the firm had only sold 45,000 units last year, what amount of loss would have been generated? 6. Use the original problem except assume fixed costs decreased by $25,000. What would the new breakeven point in units be? 7. Use the original problem except assume unit variable costs decrease by $0.75. What would the new breakeven point in units be? 8. Use the original problem except assume the selling price decreased by $2. What would the contribution ratio be? 9. Use the original problem information. How many units would the firm have to sell to generate the target profit of $30,000 ?

Answer 1

1. The breakeven point in units is 50,000 units and in sales dollars is $250,000. 2. The margin of safety in units is 5,000 units. 3. The profit generated from selling 55,000 units is $120,000. 4. The loss generated from selling 45,000 units is $40,000. 5. The new breakeven point in units with decreased fixed costs is 43,750 units. 6.

Step-by-step explanation:

Break-even Analysis for Wayne Corrugated, Inc.:

1. The breakeven point in units:
2. The breakeven point in units can be calculated using the formula: Breakeven Point (in units) = Fixed Costs ÷ Contribution Margin per unit. In this case, the fixed costs are $200,000 and the contribution margin per unit is $5.00 - $1.00 = $4.00. Thus, the breakeven point in units is $200,000 ÷ $4.00 = 50,000 units.
3. The breakeven point in sales dollars:
4. The breakeven point in sales dollars can be calculated using the formula: Breakeven Point (in sales dollars) = Breakeven Point (in units) x Selling Price per unit. In this case, the breakeven point in units is 50,000 units and the selling price per unit is $5.00. Thus, the breakeven point in sales dollars is 50,000 units x $5.00 = $250,000.
5. The margin of safety in units:
6. The margin of safety in units can be calculated using the formula: Margin of Safety (in units) = Actual Sales (in units) - Breakeven Point (in units). In this case, the actual sales in units is 55,000 units and the breakeven point in units is 50,000 units. Thus, the margin of safety in units is 55,000 units - 50,000 units = 5,000 units.
7. The profit generated from selling 55,000 units:
8. The profit generated can be calculated using the formula: Profit = (Selling Price per unit - Variable Cost per unit) x Actual Sales (in units) - Fixed Costs. In this case, the selling price per unit is $5.00, the variable cost per unit is $1.00, the actual sales in units is 55,000 units, and the fixed costs are $200,000. Thus, the profit generated is ($5.00 - $1.00) x 55,000 units - $200,000 = $120,000.
9. The loss generated from selling 45,000 units:
10. The loss generated can be calculated using the formula: Loss = Fixed Costs - (Selling Price per unit - Variable Cost per unit) x Actual Sales (in units). In this case, the fixed costs are $200,000, the selling price per unit is $5.00, the variable cost per unit is $1.00, and the actual sales in units is 45,000 units. Thus, the loss generated is $200,000 - ($5.00 - $1.00) x 45,000 units = $40,000.