| Esra Surmen |
| Break-even point in units = (total fixed costs)/contribution margin |
| Contribution Margin (CM) = (Selling price per unit - variable cost per unit) |
| Break-even point in dollars = (total fixed costs)/Contribution Margin Ratio |
| Contribution margin ratio (CMR) = CM/Selling price per unit |
| Question One |
| a) | | Break even in units |
| | | Selling Price per unit = $16 |
| | | Variable Cost per unit = $9 |
| | | Contribution Margin = (S.P-V.C) = ($16 - $9) = | | | | $7 |
| | | Total overhead fixed costs | | | $ 60,000.00 |
| | | Total fixed marketing costs | | | $ 30,000.00 |
| | | Total Fixed Costs | | $ 90,000.00 |
| | | Therefore break even in units = $90,000/7 = | | | | 12857.1428571429 | | correct |
| | | break even in units = 12,857 sunglasses |
| b) | | BREAK EVEN IN SALES DOLLARS |
| | | CMR = $7/$16 = | | 0.4375 |
| | | break even in dollars = | | | $ 205,714.29 | | | correct |
| Question Two |
| | | Analysis | | | Accept the offer $ | | Manufatures to its maximun capacity $ |
| | | Units | | | 8,000 | | 20,000 |
| | | Sales | | | 112,000.00 | | 300,000.00 | I think you took the average of 16 + 14 and used $15 did not take in to consideration different sales volumes |
| | | Less: Variable costs |
| | | Variable material cost @3.00 | | | 24000 | | 60000 |
| | | Variable labor @ 1.00 | | | 8000 | | 20000 |
| | | Variable Overhead @ 3.50 | | | 28000 | | 70000 |
| | | Variable Marketing costs @1.50 | | | 12000 | | 30000 |
| | | Contribution Margin | | | 40,000.00 | | 120,000.00 |
| | | Less: Fixed Costs |
| | | Fixed Overhead Costs @4.00 | | | 32000 | | 80000 | Fixed costs stay the same at $90,000 at all levels |
| | | Fixed Marketing Costs @2.00 | | | N/A | | 40000 |
| | | Net Operating Income | | | $ 8,000.00 | | $ - 0 |
| | | Conclusion: Ban Oak Corp. should accept this sale since it offers the more profit as compared to the maximum capacity of sunglass. |
| Question Three |
| a) | | Break even in units |
| | | Selling Price per unit = $20 |
| | | Variable Cost per unit = $12 |
| | | Contribution Margin = (S.P-V.C) = ($20 - $12) = | | | | $8 |
| | | Total overhead fixed costs | | | $ 85,000.00 | | | | | | Fixed cost increase $25000 from $90000 to $115000 |
| | | Total fixed marketing costs | | | $ 40,000.00 |
| | | Total Fixed Costs | | $ 125,000.00 |
| | | Therefore break even in units = $125,000/8 = | | | | 15625 |
| | | break even in units = 15,625 sunglasses |
| b) | | BREAK EVEN IN SALES DOLLARS |
| | | CMR = $8/$20 = | | 0.400 |
| | | break even in dollars = | | | $ 312,500.00 |
| B) |
| | | Analysis | | | Regular Sunglasses | | Mirrored Sunglasses | | | | see my solution key. Let me know if you do not understand |
| | | Units | | | 11,000 | Units | 7,000 |
| | | Sales | | | 165,000.00 | Sales | 127,750.00 |
| | | Less: Variable costs | | | | Less: Variable costs |
| | | Variable material cost @3.00 | | | 33000 | Variable material cost @6.00 | 42000 |
| | | Variable labor @ 1.00 | | | 11000 | Variable labor @ 1.00 | 7000 |
| | | Variable Overhead @ 3.50 | | | 38500 | Variable Overhead @ 3.50 | 24500 |
| | | Variable Marketing costs @1.50 | | | 16500 | Variable Marketing costs @1.50 | 10500 |
| | | Contribution Margin | | | 66,000.00 | Contribution Margin | 43,750.00 |
| | | Less: Fixed Costs | | | | Less: Fixed Costs |
| | | Fixed Overhead Costs @4.00 | | | 44000 | Fixed Overhead Costs @4.25 | 29750 |
| | | Fixed Marketing Costs @2.00 | | | N/A | Fixed Marketing Costs @2.00 | 14000 |
| | | Net Operating Income | | | $ 22,000.00 | Net Operating Income | $ - 0 |
| | | Conclusion: The changes in the fixed as well as variable costs for mirrored glasses did not affect the profitability of Ban Oak Corp. since for regular sunglass, the profit was $22,000 while for the mirrored sunglass was $0.00 |
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