This year Burchard Company sold 37,000 units of its only product for $16.40 per unit. Manufacturing and selling the product required $122,000 of fixed manufacturing costs and $182,000 of fixed selling and administrative costs. Its per unit variable costs follow $ 4.20 3.20 Material Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs Next year the company will use new material, which will reduce material costs by 50% and direct labor costs by 50% and will not affect product quality or marketability Management is considering an increase in the unit selling price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 42,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 20%. This plan will decrease unit sales volume by 5%. Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same Required: 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.) Per unit: Plan 1 Plan 2 12 Sales 19.68 16.40 2.10 1.60 Variable Costs: Material Direct labor Variable overhead costs Variable S&A costs Total variable costs Contribution margin 1.81 x 1.45 X 0.42 0.22 0.42 0.22 4.34 3.90 12.06 15.84 Plan 1 = Contribution margin ratio Contribution margin ratio Choose Numerator: Contribution margin per argin per unit 12.06 Break-even point in dollars Choose Numerator: Choose Denominator: Sales per unit $ 16.40 Contribution margin ratio 73.54% - Choose Denominator: Break-even point in dollars Break-even point in dollars $ 410,811 304,000 74.00% - Plan 2 Contribution margin ratio Contribution margin per int Sales per unit Contribution marain ratio 4.34 3.90 Total variable costs Contribution margin 12.06 15.84 Plan 1 Contribution margin ratio Choose Numerator: Contribution margin per Contribution margin ratio Choose Denominator. Sales per unit 16.40 Contribution margin ratio 73.54% 12.06 Break-even point in dollars Choose Numerator: Choose Denominator: Break-even point in dollars Break-even point in dollars 304,000 74.00% = $ 410,811 Plan 2 Contribution margin ratio Contribution margin per Sales per unit unit Contribution margin ratio 15.843 19.68 - 80.49% Break-even point in dollars Break-even point in dollars $ 380,000 304,000 80.00% =
