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

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?

5. 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 companys contribution margin ratio and contribution margin per unit.

2. Determine the companys break-even point in sales dollars and units.

3. At what level of sales units and sales dollars would the company earn net income of $144,000?

4. If the selling price were raised to $14.40 per unit, at what level 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?

4. Exercise E 5 Contribution Margin per Unit = BE in units 7 8 9 10 CM ratio 11 12 13 BE in sales 14 15 16 Should Peter buy the company? Why or why not? 17 18 19 20 Problem K. 21 Current Breakeven in Sales Dollars: 22 23 24 25 New Sales Total = New 20 Problem k 21 Current Breakeven in Sales Dollars: 22 23 24 New 25 New Sales Total = 26 27 New Breakeven w/ Sales Promo: 28 29 30 Analysis: 31 32 34 35 Alternate Problem C 36 1 and 2. Current Level 37 Variable cost per unit = 38 39 Contribution margin per unit 40 41 Breakeven in Units = 45 46 47 3. Earn income of $144,000 67 Alternate Problem E 68 1. Current 70 71 72 73 74 2. Earn $200,000 per year 75 76 78 Analysis: 95