Question

Ms. Janice Meyers, the company president, has heard that there are multiple breakeven points for every product. She does not believe this and has asked you to provide the evidence of such a possibility. Some information about the company for 2011 is as follows:

Total fixed manufacturing overhead $180,000
Total other fixed expenses $200,000
Total variable manufacturing expenses $240,000
Total other variable expenses $240,000
Units produced 60,000 units
Budgeted production 60,000 units
Units sold 50,000 units
Selling price $40

What are breakeven sales in units using absorption costing if the production units are actually 25,000?

Answer 1

Break-even point in units= 6,897 units

Step-by-step explanation:

Giving the following information:

Total fixed manufacturing overhead $180,000

Total other fixed expenses $200,000

Total variable manufacturing expenses $240,000

Total other variable expenses $240,000

Units produced 60,000 units

Selling price $40

Under the absorption costing method, the unitary product cost is calculated using the fixed overhead cost.

First, we need to calculate the unitary product cost:

Unitary cost= (Total fixed manufacturing overhead + Total variable manufacturing expenses + Total other variable expenses)/ units produced

Unitary cost= (180,000/60,000) + (240,000/60,000) + (240,000/60,000)

Unitary cost= 3 + 4 + 4= $11

Now, we need to use the following formula to calculate the break-even point in units:

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

Break-even point in units= 200,000/ (40 - 11)

Break-even point in units= 6,897 units