Question

Cannon Co. has a unit selling price of $500, variable cost per unit $300, and fixed costs of $240,000. Instructions Compute the break-even point (a) in units and (b) in sales dollars. (c) How many units must be sold to earn net income of $60,000.

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Cannon Co. has a unit selling price of $500, variable cost per unit $300, and fixed costs of $240,000.

First, we need to calculate the break-even point in units using the following formula:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 240,000/ (500 - 300)

Break-even point in units= 1,200 units

To calculate the break-even point in dollars, we need to use the following formula:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 240,000/ (200/500)

Break-even point (dollars)= $600,000

We can prove it:

Break-even point (dollars)= 1,200*$500= $600,000

Finally, we need to incorporate the desired profit to the break-even point in units:

Break-even point in units= (fixed costs + desired profit)/ contribution margin per unit

Break-even point in units= (240,000 + 60,000) / 200= 1,500 units