Asked by Kenrick Mendez on Jun 03, 2024
Verified
Silver River Company sells Products S and T and has made the following estimates for the coming year: 
Fixed costs are estimated at $202,400. For the purposes of break-even analysis, determine the following:
a. Break-even sales (units) for E
b. Break-even sales (units) of S and T
c. Sales units of E necessary to realize an operating income of $119,600 for the coming year
Break-even Analysis
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue, indicating no net loss or gain.
Operating Income
Income from a company's main business activities, excluding expenses such as interest and taxes.
Fixed Costs
Costs that do not vary with production volume, such as rent, salaries, and insurance premiums.
- Understand the concept of break-even analysis and its application in business decision making.
- Analyze the financial performance of a business using break-even points in sales units and dollars.
- Perform a detailed financial analysis to determine sales levels needed for desired profit outcomes.
Verified Answer
LB
Laura BowersJun 07, 2024
Final Answer :
a. Unit selling price of E: ($30 × 60%) + ($70 × 40%) = $46.00
Unit variable cost of E: ($24 × 60%) + ($56 × 40%) = $36.80
Unit contribution margin of E: $46.00 - $36.80 = $9.20
Break-even sales (units) for E: $202,400 ÷ $9.20 = 22,000 units
b. S: 13,200 units (22,000 units × 60%)T: 8,800 units (22,000 units × 40%)c. Sales units of E: ($202,400 + $119,600) ÷ $9.20 = 35,000 units
Unit variable cost of E: ($24 × 60%) + ($56 × 40%) = $36.80
Unit contribution margin of E: $46.00 - $36.80 = $9.20
Break-even sales (units) for E: $202,400 ÷ $9.20 = 22,000 units
b. S: 13,200 units (22,000 units × 60%)T: 8,800 units (22,000 units × 40%)c. Sales units of E: ($202,400 + $119,600) ÷ $9.20 = 35,000 units
Learning Objectives
- Understand the concept of break-even analysis and its application in business decision making.
- Analyze the financial performance of a business using break-even points in sales units and dollars.
- Perform a detailed financial analysis to determine sales levels needed for desired profit outcomes.