Asked by margaux haguenauer on Jun 02, 2024
Verified
For the coming year, River Company estimates fixed costs at $109,000, the unit variable cost at $21, and the unit selling price at $85. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating income of $150,000, and (c) the probable operating income if sales total $500,000.
Round units to the nearest whole number and percentage to one decimal place.
Break-even Point
The level of sales at which total revenues equal total costs, resulting in no profit or loss and marking the threshold for profitability.
Variable Cost
Expenses that change in proportion to the activity of a business, such as costs for raw materials or production volume.
Fixed Costs
Expenses that remain constant regardless of the amount of goods produced or sold, including lease payments, wages, and insurance premiums.
- Define the break-even benchmark in unit and dollar terms, understanding its key role in business plan development.
- Evaluate the contribution margin and the contribution margin ratio, then interpret their meanings.
- Evaluate the ramifications of sales fluctuations, cost adjustments, and price modifications on the operational breakeven and profit generation of a firm.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
a.$109,000 ÷ ($85 - $21) = 1,703 units
b.($109,000 + $150,000) ÷ $64 = 4,047 units
c.CM ratio = $64 ÷ $85 =75.3%
$500,000 × 75.3% = $376,500 contribution margin
$376,500 - $109,000 fixed costs = $267,500 operating income
b.($109,000 + $150,000) ÷ $64 = 4,047 units
c.CM ratio = $64 ÷ $85 =75.3%
$500,000 × 75.3% = $376,500 contribution margin
$376,500 - $109,000 fixed costs = $267,500 operating income
Learning Objectives
- Define the break-even benchmark in unit and dollar terms, understanding its key role in business plan development.
- Evaluate the contribution margin and the contribution margin ratio, then interpret their meanings.
- Evaluate the ramifications of sales fluctuations, cost adjustments, and price modifications on the operational breakeven and profit generation of a firm.