Question

eBook Print References Check my work Required information [The following information applies to the questions displayed below] Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model no. 6754: Variable costs, $16.00 per unit Annual fixed costs, $986,000 Model no. 43991 Variable costs, $11.80 per unit Annual fixed costs, $1,113,900 Corrigan's selling price is $61 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.) Required: 1. How many units must the company sell to break even if Model 6754 is selected? (Do not round intermediate calculations and round your final answer up to nearest whole number.) units Break-even point 507 jour d unit come as ons and

Answer 1

To calculate the break-even point for Model 6754, we need to determine the number of units that need to be sold to cover both the fixed costs and variable costs.

Variable cost per unit for Model 6754: $16.00
Annual fixed costs for Model 6754: $986,000
Selling price per unit for the universal gismo: $61.00
Sales commission rate: 15%

First, let's calculate the contribution margin per unit:
Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $61.00 - $16.00 = $45.00

Next, we calculate the contribution margin ratio:
Contribution margin ratio = Contribution margin per unit / Selling price per unit
Contribution margin ratio = $45.00 / $61.00 = 0.7377 (rounded to four decimal places)

Now, we can calculate the break-even point in units:
Break-even point (in units) = Annual fixed costs / Contribution margin ratio
Break-even point (in units) = $986,000 / 0.7377 ≈ 1,337.86

Rounding up to the nearest whole number, the company needs to sell approximately 1,338 units to break even if Model 6754 is selected.