Break-Even and Target Profit Analysis [LO3, LO4, LO5, LO6]

Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $60 per unit and has a CM ratio of 40%. The company’s fixed expenses are $360,000 per year.

The company plans to sell 17,000 bookbags this year.

Required:

1. What are the variable expenses per unit?

2. Using t he e quation m ethod:

a. What is the break-even point in units and in sales dollars?

b. What sales level in units and in sales dollars is required to earn an annual profit of

$90,000?

c. Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $3 per unit. What is the company’s new break-even point in units and in sales dollars?

3. Repeat ( 2) a bove us ing t he f ormula m ethod.