Managerial Accounting

Breakeven Analysis

Managerial Accounting

November 1, 2014

Prepare breakeven analysis and a C-V-P analysis planning future sales using the information below. Breakeven Analysis and Planning Future Sales

Write Company has a maximum capacity of 200,000 units per year. Variable manufacturing costs are $12 per unit. Fixed overhead is $600,000 per year. Variable selling and administrative costs are $5 per unit, and fixed selling and administrative costs are $300,000 per year. The current sales price is $23 per unit.

Required

1. What is the breakeven point in (a) sales units and (b) sales dollars?

Breakeven point can be found by applying below formula

Breakeven point = Fixed cost (FC) / Contribution Margin (CM) per unit

First we need to find the contribution Margin,

Contribution Margin = Selling price – Variable Cost

= 23 – (12 – 5)

= 6

Then by applying the formula we get the breakeven point in Sales unit

(600000+300000) / 6 = 150000 units

And breakeven point in sales dollar will be

150000 * 23 = $ 3450000

2. How many units must Write Company sell to earn a profit of $240,000 per year?

We need to apply below formula to get the number of units to be sold to earn a profit of $240,000

Number of units = Profit +Fixed cost/Contribution

= 240000 + 900000 / 6

= 190000 units

3. A strike at one of the company's major suppliers has caused a shortage of materials, so the current year's production and sales are limited to 160,000 units. To partially offset the effect of the reduced sales on profit, management is planning to reduce fixed costs to $841,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $23 per unit.

a. What amount of fixed costs was covered by the total contribution margin of the first 30,000 units sold?

To find the fixed cost amount...