Question
Breakeven Analysis and Planning Future Sales P9. PeerlessCompanyhasamaximumcapacityof500,000unitsperyear.Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Vari- able selling and administrative
Breakeven Analysis and Planning Future Sales
P9. PeerlessCompanyhasamaximumcapacityof500,000unitsperyear.Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Vari- able selling and administrative costs are $5 per unit, and fixed selling and adminis- trative costs are $300,000 per year. The current sales price is $36 per unit.
Required
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What is the breakeven point in (a) sales units and (b) sales dollars?
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How many units must Peerless Company sell to earn a profit of $600,000
per year?
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Astrikeatoneofthecompany%u2019smajorsuppliershascausedashortageofmate-
rials, so the current year%u2019s production and sales are limited to 400,000 units. To partially offset the effect of the reduced sales on profit, management is plan- ning to reduce fixed costs to $1,000,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $36 per unit.
a. What amount of fixed costs was covered by the total contribution mar- gin of the first 30,000 units sold?
b. What contribution margin per unit will be needed on the remaining 370,000 units to cover the remaining fixed costs and to earn a profit of $300,000 this year?
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