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Subject Topic: BEC - AICPA 2009 #36 (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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divyagovil1
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Posted: 17 Apr 2009 at 16:15 | IP Logged  

Firstly, lets calculate the fixed costs :-

We know, Break even is when total sales = total costs, i.e., fixed + variable

In the 1st year, break even was at 20,000 units.

Thus, Sales 20000 units X $7.50 p.u. = FC + VC 20,000 units X $2.25 p.u.

FC = $105,000

Second year,

new VC = 2.25 p.u. + 33.3% increase = $3.00 per unit

new FC = 105,000 + 10% increase = $115,500

Again, applying the break even formula - assume units reqd to break even in 2nd year are "y" units :-

Sales y X 9 p.u. = FC 115,500 + VC y X 3.00 p.u.

Thus, y = Break even units = 19250



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obsession
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Posted: 17 Apr 2009 at 16:21 | IP Logged  

divyagovil1 wrote:

Firstly, lets calculate the fixed costs :-

We know, Break even is when total sales = total costs, i.e., fixed + variable

In the 1st year, break even was at 20,000 units.

Thus, Sales 20000 units X $7.50 p.u. = FC + VC 20,000 units X $2.25 p.u.

FC = $105,000

Second year,

new VC = 2.25 p.u. + 33.3% increase = $3.00 per unit

new FC = 105,000 + 10% increase = $115,500

Again, applying the break even formula - assume units reqd to break even in 2nd year are "y" units :-

Sales y X 9 p.u. = FC 115,500 + VC y X 3.00 p.u.

Thus, y = Break even units = 19250

Thanks got it now.  I was just getting nervous.

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dark_man_usa
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Posted: 17 Apr 2009 at 18:02 | IP Logged  

first of all organize your data, they give you data for last year and for current year, there for date for last year is

S=7.5, V=2.25

This year S= 9 (given) V= increased 33.3% therefore=2.992

The trick in this question is they didn't give you the FC, they gave you the breakeven for last year there for apply the formula of breakeven to get the FC,

Breakeven=FC/C.M====> 20,000=FC/5.25 ===> FC=20,000*5.25=105,000

Now the FC for this year increased 10% therefore, 105,000+10500=115500

Now u have all information u need to calculate the breakeven for this year breakeven= 115500/(9-2.2992)=19250

Net income is distractor in this question.

I hope that helps

 

 

 

 

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Mr.300
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Posted: 11 Jun 2009 at 00:18 | IP Logged  

36.  CPA- A ceramics manufacturer sold cups last year for $7.50 each.  Variable costs of manufacturing were $2.25 per unit.  The company needed to sell 20,000 cups to break even.  Net income was $5,040.  This year, the company expects the price per cup to be $9.00; variable manufacturing costs to increase 33.3%; and fixed costs to increase 10%.  How many cups (rounded) does the company need to sell this year to break even?

 

a. 17,111 b. 17,500 c. 19,250 d. 25,667 Explanation Choice "c" is correct.  

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Nan - Louisiana
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Posted: 11 Jun 2009 at 01:06 | IP Logged  

Ignore the Net Income $5,040.  Irrelevant information.

Last year:

Selling price was 7.50, variable cost was 2.25, leaving 5.25 per cup to cover fixed costs.

5.25 per cup available for fixed costs x 20,000 cups to break even = 105,000 total fixed costs.

This year:

Variable costs up 33.3%.  2.25 x 1.33333 = 3.00 variable cost per cup.

Fixed costs up 10%.  105000 x 1.1 = 115,500 total fixed costs.

Selling price 9.00 - 3.00 VC = 6.00 available per cup to cover fixed costs.

115,500 / 6.00 = 19,250 cups to sell to break even

 



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