CHAPTER 5

Answer 1:
Price per unit: $25
Variable cost per unit: $17
Fixed Cost: $96,000
a) Break Even Point:
Fixed cost
(Price-Variable cost)per unit
Break Even Point:

$96,000
($25-$17)

Break Even Point: 12,000 units

b)
Sales: Units X price per unit
12000 units x $25
$300,000
Fixed Cost:$96,000
Total Variable Cost: Units X Variable cost per unit
12000 units x $17
$204,000
Net Profit(loss): Total Sales Total cost
$300,000-($96,000+$204,000)
0
The net profit(loss) at 12000 units is 0. Hence we can illustrate that the breakeven point
has been achieved.

Answer 2:
Price per unit: $13
Variable cost per unit: $8
Fixed Cost: $20,000

a) Break Even Point:

Fixed cost
(Price-Variable cost)per unit

Break Even Point:

$20,000
($13-$8)

Break Even Point: 4,000 units

b)

Profit: $15,000
Fixed Cost: $20,000
Let the sales needed to earn the profit be x units
Profit: Total Revenue-Total Cost
Total Revenue: Revenue per unit x total units
$13x
Total Cost: Fixed cost + (Variable cost per unit x total units)
$20,000 + (8x)

$15,000: 13x ($20,000 + 8x)

5x: $35,000
x: 7,000 units
Sales of 7,000 units are needed to earn of $15,000.

Answer 3:
FIXED EXPENSES:
Rent: $120,000
Executives Under Contract: $112,000
TOTAL FIXED EXPENSES: $232,000
VARIABLE EXPENSES:
Raw Material: $.70 per unit
Factory Labor: $1.50 per unit
TOTAL VARIABLE EXPENSES: $2.20
PRICE PER UNIT: $8
Break Even Point:

Break Even Point:

Fixed cost
(Price-Variable cost)per unit

$232,000
($8-$2.20)

Break Even Point: 40,000 units

Answer 5:
a)

Fixed Cost: $200,000

Price per unit: $56
Variable cost per unit: $31
Break Even Point:
Break Even Point:

Fixed cost
(Price-Variable cost)per unit
$200,000
($56-$31)

Break Even Point: 8,000 units

b)
Reduced Fixed Cost: $150,000
Price per unit: $56
Variable cost per unit: $34
Break Even Point:
Break Even Point:

Fixed cost
(Price-Variable cost)per unit
$150,000
($56-$34)

Break Even Point: 6,818 units

c) At very high volume levels the profitability margin will start reducing.