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BEC - Business Environment & Concepts (Forum Locked Forum Locked)
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Subject Topic: Breakeven sales in units Post ReplyPost New Topic
  
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cpa2010
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Joined: 02 Feb 2010
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Posted: 26 Sep 2010 at 14:15 | IP Logged Quote cpa2010

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

Solution:

Choice "c" is correct. The ceramics manufacturer will need to sell 19,250 cups under new cost

assumptions to break even. The fact pattern provides current breakeven information and requires

computation of a revised breakeven subject to new assumptions.

Current Costs Assumptions Revised Costs

Selling price (given) $ 7.50 $ 9.00

Variable costs (given) 2.25 x 1.333 = 3.00

Contribution margin (computed) $ 5.25 $ 6.00

Breakeven in units (given) 20,000

Fixed costs (computed) $105,000 x 1.10 = $ 115,000

Current fixed costs are computed using the breakeven formula in units as follows:

Fixed costs Contribution margin per unit = Breakeven in units

Fixed costs $5.25 = 20,000

Fixed costs = $5.25 x 20,000 = $105,000

Revised breakeven point in units is computed using the same formula with revised data:

Fixed costs Contribution margin per unit = Breakeven in units

$115,000 $3.00 = Breakeven in units

19,250 = Breakeven in units

 

Y is contibution magin taken as 3 per unit when it should be 6 ?

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Bunnys
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Joined: 25 Sep 2010
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Posted: 26 Sep 2010 at 14:52 | IP Logged Quote Bunnys

Eh, why make it so complicated?

We know NI = Sales - VC - FC

Last Year:

0 = 150,000 - 45,000 - FC

FC = 105,000

This Year:

Fixed Cost = 105,000 x 1.1 (10% increase) = 115,500

Sale = $9

Variable Cost = 3 (2.25*33.3%)

Contribution Margin = Sales - VC = 9-3 = 6

NI = S - VC - FC

0 = 9x - 3x -115,500

115,500 = 6x

x = 19,250



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Alex2008
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Posted: 26 Sep 2010 at 14:56 | IP Logged Quote Alex2008

http://www.cpanet.com/cpa_forum/forum_posts.asp?TID=26563&am p;KW=A+ceramics+manufacturer+sold+cups+l
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cpa2010
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Posted: 27 Sep 2010 at 16:06 | IP Logged Quote cpa2010

thanks Bunny ...Nice explanation ...i got it ....thanks a lot for the help
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