Question

Ritchie Manufacturing Company makes a product that it sells for $200 per unit. The company incurs variable manufacturing costs of $101 per unit. Variable selling expenses are $19 per unit, annual fixed costs are $464,000, and fixed selling and administrative costs are $256,000 per year.

Determine the break-even point in units and dollars using each of the following approaches:
a. Use the equation method.
b. Use the contribution margin per unit approach.
c. Prepare a contribution margin income statement for the break-even sales volume.

Answer 1

The calculations of three points is shown below:-

Step-by-step explanation:

A. Break- even point in units 9,000

Break-even point in dollars $1,800,000

B.Contribution margin per unit $80

Break-even point in units 9,000

Break-even point in dollars $1,800,000

C. Sales $1,800,000

Variable cost $1,080,000

Fixed cost $720,000

Contribution margin $720,000

Net operating income $0

Working note:

Contribution margin = Sold units - Variable manufacturing costs - Variable selling expenses

$200 - $101 - $19

= $80

Total fixed cost = Annual fixed cost + Fixed selling and administrative costs

= $464,000 + $256,000

= $720,000

Break-even point in units = Total fixed cost ÷ Contribution margin

= $720,000 ÷ $80 = 9,000 units

Break-even point in dollars = Sold units × Break-even point in units

= $200 × 9,000

= $1,800,000