Exercise 6-12 (continued)
c. The company’s new cost/revenue relationships will be:
Selling price ... $40 100%
Less variable expenses ($28 – $4) ... 24 60
Contribution margin... $16 40%
$40Q = $24Q + $180,000 + $0
$16Q = $180,000
Q = $180,000 ÷ $16 per unit
Q = 11,250 units
In sales dollars: 11,250 units × $40 per unit = $450,000
Alternative solution:
X = 0.60X + $180,000 + $0
0.40X = $180,000
X = $180,000 ÷ 0.40
X = $450,000
In units: $450,000 ÷ $40 per unit = 11,250 units
3. a.
Fixed expenses
Break-even point = in unit sales Unit contribution margin
$180,000
= = 15,000 units
$12 per unit
In sales dollars: 15,000 units × $40 per unit = $600,000
Break-even point = in sales dollars CM ratio
= = $600,000
0.30
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