EX 21-11 Break-even sales and sales to realize income from operations OBJ. 3 For the current year ended March 31, Chewy Company expects fixed costs of $900,000, a unit variable cost of $75, and a unit selling price of $120. a. Compute the anticipated break-even sales (units). b. Compute the sales (units) required to realize income from operations of $112,500. Revenues Costs pl Break-Even Point So what? Well, you can use this knowledge to push your sales people to at least reach that level, if nothing else. Next, if you take Fixed costs and divide them by this unit contribution margin, you'd end up Break-even sales in unit. Let's work on this below: Fixed Costs Sales Price per Unit Variable Cost per Unit Unit Contribution Margin n/a Break-even units n/a This means that if you sold 20,000 units, you'd have enough"contribution margin" to pay for fixed costs. Hard to believe? Let's test this out: Sales price per unit (given) X Break-even units (from above) Total Sales n/a Less: Total Variable Costs (VC/ unit x # of units (from above)) - Contribution Margin n/a n/a Should be the samel What were the fixed costs? We can tweak this idea further: let's say a CEO says that he/she wants a certain level of profit or "Target Profit," we can actually build that into this formula, which now becomes (Fixed Costs + Target Profit) / Unit Contribution Margin. Do CEO's ever talk like this? Always! Sales (in units) needed for a specific Target Profit (Fixed Costs + Target Profit) / Unit Contribution Margin Fixed Costs Target Profit n/a n/a Total n/a Sales needed (in unit) n/a