Question

Go to the P22-4A problem (pp. 22–39) in your text. See the "Do it" example for information on break even analysis (also found in the Digital Book under Course Resources). Compute the breakeven point for fiscal year 2020. Compute the breakeven point in dollars under each of the alternative courses of action. What course of action do you recommend and why

Answer 1

Instructions are below.

Step-by-step explanation:

We weren't provided with enough information to solve the requirements. But, I will provide the formula and a small example.

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

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

For ex:

Selling price= $100

Unitary variable cost= $60

Fixed costs= $1,250,000

Break-even point (dollars)= 1,250,000/ [(100 - 60)/100]

Break-even point (dollars)= $3,125,000

Imagine the desired profit of $500,000

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

Break-even point (dollars)= (1,250,000 + 500,000) / 0.4

Break-even point (dollars)= $4,375,000