Bar Company has a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per

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Bar Company has a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 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 $36 per unit.


Required

1. What is the breakeven point in

(a) Sales units

(b) Sales dollars?

2. How many units must Bar Company sell to earn a profit of $600,000 per year?

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 400,000 units. To partially offset the effect of the reduced sales on profit, management is planning to reduce fixed costs to $1,000,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $36 per unit.

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

b. What contribution margin per unit will be needed on the remaining 370,000 units to cover the remaining fixed costs and to earn a profit of $290,000 this year?


Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Related Book For  book-img-for-question

Principles of Accounting

ISBN: 978-1133626985

12th edition

Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson

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