Accounting Final
WwW.DiorBoy.Com
All Rights for Abdulmohsen
3- calculate breakeven point ?
PROBLEM 8-35
Surreal Sound, Inc. manufactures and sells compact disks. Price and cost data are as follows:
Selling price per unit (package of two CDs)
$ 25.00
Variable Costs per unit:
Direct Materials
$ 8.20
Direct Labour
4.00
Manufacturing Overheads
6.00
Selling Expenses
1.60
Total Variable Costs per Unit
$19.80
Annual Fixed Costs
Manufacturing Overheads
$288,000
Selling & Administrative Overheads
414,000
Total Fixed Costs
$ 702,000
$ 3,500,000
Forecasted Annual Sales Volume (140,000 units)
Required:
1
What is Surreal‟s break even point in units?
2
What is the company‟s break even point in sales dollars?
3
How many units would Surreal Sound have to sell in order to earn $
390,000?
4
What is the firm‟s margin of safety?
5
Management estimates that direct labour costs will increase by 10% next year.
How many units will the company have to sell next year to reach its break even point? 6
If the company‟s direct labour costs do increase by 10 percent, what selling price per unit of product must it charge to maintain the same contribution margin ratio?
WwW.DiorBoy.Com
All Rights for Abdulmohsen
WwW.DiorBoy.Com
All Rights for Abdulmohsen
fixed costs unit contribution margin
$702,000
135,000 units
$25.00 $19.80
1.
Break - even point (in units)
2.
Break - even point (in sales dollars)
3.
Number of sales units required to earn target net profit
4.
Margin of safety = budgeted sales revenue – break-even sales revenue
fixed cost contribution - margin ratio
$702,000
$3,375,000
$25.00 $19.80
$25.00
fixed costs target net profit unit contribution margin
$702,000 $390,000
210,000 units
$25.00 $19.80
= (140,000)($25) – $3,375,000 = $125,000
5.
Break-even point if direct-labor costs increase by 10
All Rights for Abdulmohsen
3- calculate breakeven point ?
PROBLEM 8-35
Surreal Sound, Inc. manufactures and sells compact disks. Price and cost data are as follows:
Selling price per unit (package of two CDs)
$ 25.00
Variable Costs per unit:
Direct Materials
$ 8.20
Direct Labour
4.00
Manufacturing Overheads
6.00
Selling Expenses
1.60
Total Variable Costs per Unit
$19.80
Annual Fixed Costs
Manufacturing Overheads
$288,000
Selling & Administrative Overheads
414,000
Total Fixed Costs
$ 702,000
$ 3,500,000
Forecasted Annual Sales Volume (140,000 units)
Required:
1
What is Surreal‟s break even point in units?
2
What is the company‟s break even point in sales dollars?
3
How many units would Surreal Sound have to sell in order to earn $
390,000?
4
What is the firm‟s margin of safety?
5
Management estimates that direct labour costs will increase by 10% next year.
How many units will the company have to sell next year to reach its break even point? 6
If the company‟s direct labour costs do increase by 10 percent, what selling price per unit of product must it charge to maintain the same contribution margin ratio?
WwW.DiorBoy.Com
All Rights for Abdulmohsen
WwW.DiorBoy.Com
All Rights for Abdulmohsen
fixed costs unit contribution margin
$702,000
135,000 units
$25.00 $19.80
1.
Break - even point (in units)
2.
Break - even point (in sales dollars)
3.
Number of sales units required to earn target net profit
4.
Margin of safety = budgeted sales revenue – break-even sales revenue
fixed cost contribution - margin ratio
$702,000
$3,375,000
$25.00 $19.80
$25.00
fixed costs target net profit unit contribution margin
$702,000 $390,000
210,000 units
$25.00 $19.80
= (140,000)($25) – $3,375,000 = $125,000
5.
Break-even point if direct-labor costs increase by 10