Question

For the past year, Cline Company had fixed costs of $6,552,000, a unit variable cost of $444, and a unit selling price of $600. For the coming year, no changes are expected in revenues and costs except that a new wage contract will increase variable costs by $6 per unit.(a) Determine the break-even sales (in units) for the past year.(b) Determine the break-even sales (in units) for the coming year.

Answer 1

a. 42,000 units

b. 43,680 units

Step-by-step explanation:

The calculation of the break even point is presented below:

= (Fixed cost) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

a. So, the break even point would be

= ($6,552,000) ÷ ($600 - $444)

= $6,552,000 ÷ $156

= 42,000 units

b. In the other case, it would be

= ($6,552,000) ÷ ($600 - $444 + $6)

= $6,552,000 ÷ $150

= 43,680 units