Question

ssume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.40 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $91,800?

Answer 1

Instructions are below.

Step-by-step explanation:

With the information provided, we can't solve the requirements. But, I can give the formulas and a small example to guide an answer.

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

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

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

For example:

Selling price per unit= 4.2

Unitary variable cost= 3.4

Fixed costs= 85,000

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

Break-even point in units= 85,000 / (4.2 - 3.4)

Break-even point in units= 106,250 units

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

Break-even point (dollars)= 85,000/ (0.8/4.2)

Break-even point (dollars)= $446,250

Now, we need to determine the number of units to be sold for the desired profit of $91,800:

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

Break-even point in units= (85,000 + 91,800) / 0.8

Break-even point in units= 221,000 units