Chapters 7-8 Question 1 Of 40a Product Is Sold At 6000 Per U
Chapters 7 8question 1 Of 40a Product Is Sold At 6000 Per Unit Th
A product is sold at $60.00 per unit, the variable expense per unit is $30, and total fixed expenses are $200,000. What are the breakeven sales in dollars?
A. $3,333
B. $100,000
C. $133,333
D. $400,000
Sample Paper For Above instruction
Introduction
The concept of the breakeven point is fundamental in managerial accounting, aiding businesses in determining the minimum sales necessary to cover all costs. This paper focuses on calculating the breakeven sales in dollars for a product based on given selling price, variable expenses, and fixed costs, illustrating essential financial analysis methods used in cost-volume-profit (CVP) analysis.
Understanding Cost-Volume-Profit Analysis
Cost-Volume-Profit analysis helps managers understand how changes in costs and sales volume affect operating income. Critical to this analysis is the calculation of the breakeven point, where total revenues equal total expenses, resulting in zero profit. At this point, the contribution margin—a key concept—is equal to fixed expenses.
Calculating the Contribution Margin
The contribution margin per unit is obtained by subtracting variable expenses per unit from the selling price:
\[
\text{Contribution Margin per Unit} = \text{Selling Price} - \text{Variable Expenses} = \$60 - \$30 = \$30
\]
This value indicates how much each unit contributes toward covering fixed costs and generating profit.
Determining Breakeven Sales in Units and Dollars
The breakeven point in units is calculated by dividing total fixed expenses by the contribution margin per unit:
\[
\text{Breakeven Units} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin per Unit}} = \frac{\$200,000}{\$30} \approx 6,666.67
\]
To find breakeven sales in dollars, multiply the breakeven units by the selling price:
\[
\text{Breakeven Sales in Dollars} = \text{Breakeven Units} \times \text{Selling Price} = 6,666.67 \times \$60 = \$400,000
\]
Rounded to the nearest dollar, the breakeven sales in dollars amount to \$400,000.
Analysis of the Options
Reviewing the options:
- Option A: $3,333 – too low, does not align with calculations.
- Option B: $100,000 – also too low.
- Option C: $133,333 – inconsistent with the calculation.
- Option D: $400,000 – matches the calculated result.
Conclusion
The correct answer is D. \$400,000, representing the sales dollar amount needed to cover fixed expenses and variable costs, ensuring no profit or loss.
Implications for Business Planning
Understanding the breakeven point empowers managers to make informed decisions regarding pricing, cost control, and sales targets. It also assists in evaluating the impact of cost changes and sales volume fluctuations on profitability.
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