Exercise E Peter Garcia Meza is considering buying a company if it will break even or earn net income on revenues of $80,000 per month. The company that Peter is considering sells each unit it produces for $5. Use the following cost data to calculate the break-even point in units and sales dollars. Fixed Costs Variable Cost $51,000 $2 per unit I 1. What is the contribution margin per unit? 2. What is the breakeven point in units? 3. What is the contribution margin ratio? 4. What is the breakeven point in dollars? S. Should Peter buy this company? Why or why not? Problem K Surething CD Company reports sales of$720,000, variable costs of $432,000, and fixed costs of $108,000. If the company spends $72,000 on a sales promotion campaign, it estimates that sales will be increased by $270,000. Determine whether the sales promotion campaign should be undertaken using breakeven analysis in dollars (hint: calculate current breakeven point and breakeven with new sales promotion). Provide all calculations. Alternate problem C Jefferson Company has a plant capacity of 100,000 units, at which level variable costs are $720,000. Fixed costs are expected to be $432,000. Each unit of product sells for $12. 1. Calculate the company's contribution margin ratio and contribution margin per unit. 2. Determine the company's break-even point in sales dollars and units. 3. At what level of sales units and sales dollars would the company eam net income of $144,000? 4. If the selling price were raised to $14.40 per unit, at what les of sales units would the company earn $144,000? Alternate problem E See Right Company makes contact lenses. The company has a plant capacity of 27,000 units. Variable costs are $20 per unit. Fixed costs are $2,000,000 per year. The selling price is $100 per unit. 1. Compute the break-even point in units 2. How many units would have to be sold to earn $200,000 per year? Is this possible? Why or why not? C E F H Chapter 5 Homework 1 Solution Code Note: There are several ways to complete these problems. Use whatever way you feel most comfortable and SHOW YOUR WORK in a professional manner (meaning, so another person can clearly see how you did your calculations with labels) and use the CHECK YOURSELF to 2 stay on track. Instructor will provide you with the Solution Code to see how these could be calculated (again, other methods are ok as long as amounts agree). ALWAYS REFER TO PROBLEM INSTRUCTIONS FOR REQUIREMENTS 3 Exercise E Contribution Margin per Unit 4 SELF CHECK-may be different than what is required 7 BE in units Contribution Margin per Unit 10 CM ratio Breakeven in Sales Dollars 11 12 13 BE in sales Should Peter buy the company? Why or why not? 17 Problem K 20 SELF CHECK ONLY 25 Current Breakeven in Sales Dolars: Current BE in Sales 5 22 23 New Sales Total H C 17 Problem K 20 SELF CHECK ONLY 21 Current Breakeven in Sales Dollars Current BE in Sales $ 22 23 24 New Sales Total New Sales Total 25 New Contribution Margin Ratio 26 New Breakeven w/ Sales Proma: 28 29 30 Analysis: 33 Alternate Problem C 35 36 and 2. Current Level xHint? Calculate Variable Cost per unit as Variable Costs/plant capacity in units 37 Variable cost per unit Contribution margin per unit CM ratio 41 Breakeyen in Units Breakeven in Sales G H5 A C E J 34 Alternate Problem C 35 36 Calculate Variable Cost per unit as Variable Costs/plant capacity in units. x Hint? 1 and 2. Current Level Variable cost per unit 37 38 39 Contribution margin per unit CM ratio 40 41 Breakeven in Units Breakeven in Sales T 3. Earn income of $144,000 SELF CHECK ONLY Units to Reach Target Income Sales to Reach Target Income 52 4. Sales UNITS required to earn $144,000 if selling price $14.40 Contribution margin per unit ssss 07 Alternate Problem E 67 1. Current 71 72 73 2. Eam $200,000 per year 74 75 76 77 78 Analysis 90 Sheett
