Question

For the current year ending January 31, Ringo Company expects fixed costs of $178,500 and a unit variable cost of $41.50. For the coming year, a new wage contract will increase the unit variable cost to $45. The selling price of $50 per unit is expected to remain the same.

Answer 1

Answer: A. 21,000 B. 35,700

Step By Step:

Contribution Margin per unit = $ 8.50

Break even sales (in units) = Fixed Cost / Contribution margin per unit

Break even sales (in units) = 178,500 / 8.50

Break even sales (in units) = 21,000 units

Answer to Part b)

Contribution Margin = Selling Price per unit - Variable cost per unit

Contribution Margin per unit = 50 - 45

New Contribution Margin per unit = $ 5

Break even sales (in units) = Fixed Cost / Contribution margin per unit

Break even sales (in units) = 178,500 / 5

New Break even sales (in units) = 35,700 units

Answer 2

a. The break-even sales for the current year, with fixed costs of $178,500, a selling price of $50, and a unit variable cost of $41.50, is approximately 21,000 units. b. Anticipated break-even sales for the next year, factoring in a new $45 unit variable cost, would be 35,700 units.

a. To compute the break-even sales (in units) for the current year, you can use the break-even point formula:

`\[ \text{Break-Even Sales (units)} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit}} \]`

- Fixed Costs = $178,500

- Selling Price per Unit = $50

- Variable Cost per Unit = $41.50

`\[ \text{Break-Even Sales (units)} = (178,500)/(50 - 41.50) \]\[ \text{Break-Even Sales (units)} = (178,500)/(8.50) \]\[ \text{Break-Even Sales (units)} \approx 21,000 \]`

b. For the coming year with the new wage contract, the unit variable cost increases to $45. Use the same break-even point formula:

`\[ \text{Anticipated Break-Even Sales (units)} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit} - \text{New Variable Cost per Unit}} \]`

- New Variable Cost per Unit = $45

`\[ \text{Anticipated Break-Even Sales (units)} = (178,500)/(50 - 45) \]\[ \text{Anticipated Break-Even Sales (units)} = (178,500)/(5) \]\[ \text{Anticipated Break-Even Sales (units)} = 35,700 \]`

Therefore, a. The break-even sales for the current year are approximately 21,000 units, and b. The anticipated break-even sales for the coming year, considering the new wage contract, are 35,700 units.

The complete question is:

For the current year ending January 31, Ringo Company expects fixed costs of $178,500 and a unit variable cost of $41.50. For the coming year, a new wage contract will increase the unit variable cost to $45. The selling price of $50 per unit is expected to remain the same.

a. Compute the break-even sales (in units) for the current year.

b. Compute the anticipated break-even sales (in units) for the coming year, assuming the new wage contract is signed.