Chapters 7–8 Question 1 Of 40a Product Is Sold At 600 430980
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
Paper For Above instruction
Introduction
Breakeven analysis is a fundamental concept in managerial accounting, which determines the sales volume necessary for a business to cover its fixed and variable expenses, resulting in neither profit nor loss. Understanding the calculation of breakeven sales in dollars is vital for effective financial planning and decision-making. This paper discusses the methodology to compute breakeven sales in dollars, applies it to the given scenario, and explores its significance in managerial decisions.
Calculation of Breakeven Sales in Dollars
The formula for breakeven sales in dollars is based on the contribution margin ratio and fixed expenses:
\[
\text{Breakeven Sales in Dollars} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin Ratio}}
\]
Where:
- Contribution Margin per unit = Sales price per unit - Variable expense per unit
- Contribution Margin Ratio = Contribution Margin per unit / Sales price per unit
Applying the formula with the given data:
- Sales price per unit = $60
- Variable expense per unit = $30
- Fixed expenses = $200,000
Calculating the contribution margin per unit:
\[
\$60 - \$30 = \$30
\]
Calculating the contribution margin ratio:
\[
\frac{\$30}{\$60} = 0.5
\]
Finally, calculating breakeven sales in dollars:
\[
\frac{\$200,000}{0.5} = \$400,000
\]
Therefore, the business needs $400,000 in sales revenue to break even.
Discussion and Implications
The calculated breakeven sales of $400,000 indicate the minimum sales volume the company must achieve to cover all fixed and variable costs. This information is critical for setting sales targets, pricing strategies, and evaluating profitability thresholds. Managers can utilize breakeven analysis to assess the impact of changing costs or prices on profitability and to develop strategies to increase the margin of safety.
Moreover, understanding the breakeven point helps in decision-making regarding product lines, such as whether to discontinue or promote certain products. It also guides budgeting processes and financial forecasting, especially in scenarios involving new product launches or cost control measures.
Conclusion
The breakeven sales in dollars for this product, given the data, is $400,000. It is an essential metric that aids managers in making informed decisions to ensure financial sustainability and growth. Given the choices provided, the correct answer is D. $400,000.
References
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