APPLY THE CONCEPTS: Break-Even Point in Units

The break-even point can be expressed in terms of sales dollars or number of units. The break-even units tells us how many units must be sold so that operating income is $0.

Assume that you are part of the accounting team for Copeland Industries. The company currently expects to sell 618 units for total revenue of $21,000 each month. Copeland Industries estimates direct materials costs of $3,150, direct labor costs of $4,200, variable overhead costs of $2,100, and variable selling and administrative costs of $1,050. Fixed costs of $8,500 are also expected, which includes fixed overhead and selling and administrative costs. Using this information, complete the contribution margin income statement shown below.

Copeland Industries
Contribution Margin Income Statement
Sales	$fill in the blank ae34f5f79073079_1
Less: Variable costs	fill in the blank ae34f5f79073079_3
Contribution margin	$fill in the blank ae34f5f79073079_5
Less: Fixed costs	fill in the blank ae34f5f79073079_7
Operating income	$fill in the blank ae34f5f79073079_8

Feedback

Review the formula and structure of this statement from the first two steps above, and apply these values.

Recall that direct labor and direct materials are included with variable costs.

Copeland Industries is examining cost behavior patterns. Your recommendation is to first determine the break-even point in units. First, calculate the contribution margin (CM) per unit (rounded to the nearest dollar). $fill in the blank 4034f1fc1024fcc_1

Next, complete the formula below to determine the break-even units.
Total Fixed Costs / Contribution Margin per Unit = Units
$fill in the blank 4034f1fc1024fcc_2/ $fill in the blank 4034f1fc1024fcc_3 = fill in the blank 4034f1fc1024fcc_4units

Feedback

Use the information from the prior step to calculate these values. The contribution margin per unit is simply the contribution margin from the statement above divided by the number of units sold.

APPLY THE CONCEPTS: The Profit-Volume Graph

A profit-volume graph helps managers to visualize the relationship between profits and units sold. The data for Copeland Industries has been used to construct the profit-volume graph below. The purple points (diamond symbols) plot the profit line. The operating loss is the shaded area bordered by the red points (cross symbols). The operating profit is the area bounded by the green points (triangle symbols).

Choose the correct profit-volume graph for Copeland Industries A

A.

B.

C.

D.

Feedback

APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs

Now consider each of the following scenarios for Copeland Industries. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.

Scenario 1	Scenario 2	Scenario 3
Copeland will dispose of a machine in the factory. The depreciation on that equipment is $500 per month.	After some extensive market research, Copeland has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately.	Copeland has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit.
CM per unit: $fill in the blank 229e82fed02f05d_1	CM per unit: $fill in the blank 229e82fed02f05d_2	CM per unit: $fill in the blank 229e82fed02f05d_3
Break-even units: fill in the blank 229e82fed02f05d_4units	Break-even units: fill in the blank 229e82fed02f05d_5 units	Break-even units: fill in the blank 229e82fed02f05d_6 units \