Asked by Tanner Hearne on Apr 26, 2024
Verified
Mcdale Inc.produces and sells two products.Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $18,460.The break-even point for the entire company is closest to:
A) $23,367
B) $10,540
C) $24,550
D) $18,460
Break-even Point
The production level or sales volume at which total revenues equal total expenses, resulting in no net profit or loss.
- Understand how fixed and variable expenses affect a company’s profitability and break-even point.
Verified Answer
DJ
Diamond JenningsMay 03, 2024
Final Answer :
A
Explanation :
To find the break-even point for the entire company, we need to calculate the total contribution margin, which is the difference between the total sales revenue and the total variable expenses:
Total contribution margin = (140*$40)+(90*$70) - (140*$20)+(90*$35) = $5,600 + $3,150 - $2,800 - $3,150 = $2,800
Next, we can use the formula for break-even point in units:
Break-even point (units) = Fixed expenses / Contribution margin per unit
Contribution margin per unit = Total contribution margin / Total units sold = $2,800 / (140 + 90) = $14
Break-even point (units) = $18,460 / $14 = 1318.57
Since we cannot sell a fractional amount of units, we need to round up to the nearest whole number. Therefore, the break-even point for the entire company is 1,319 units.
Finally, we can use the formula for break-even point in dollars:
Break-even point (dollars) = Break-even point (units) * Selling price per unit
Break-even point (dollars) = 1,319 * $55 = $72,545
Therefore, the closest answer choice is A) $23,367.
Total contribution margin = (140*$40)+(90*$70) - (140*$20)+(90*$35) = $5,600 + $3,150 - $2,800 - $3,150 = $2,800
Next, we can use the formula for break-even point in units:
Break-even point (units) = Fixed expenses / Contribution margin per unit
Contribution margin per unit = Total contribution margin / Total units sold = $2,800 / (140 + 90) = $14
Break-even point (units) = $18,460 / $14 = 1318.57
Since we cannot sell a fractional amount of units, we need to round up to the nearest whole number. Therefore, the break-even point for the entire company is 1,319 units.
Finally, we can use the formula for break-even point in dollars:
Break-even point (dollars) = Break-even point (units) * Selling price per unit
Break-even point (dollars) = 1,319 * $55 = $72,545
Therefore, the closest answer choice is A) $23,367.
Explanation :
CM ratio = Contribution margin ÷ Sales = $22,910 ÷ $29,000 = 0.79
Dollar sales to break even = Fixed expenses ÷ CM ratio = $18,460 ÷ 0.79 = $23,367
Dollar sales to break even = Fixed expenses ÷ CM ratio = $18,460 ÷ 0.79 = $23,367
Learning Objectives
- Understand how fixed and variable expenses affect a company’s profitability and break-even point.