Company XXX developed the following information for its product:
Sales price
Variable cost
Contribution margin
Total fixed costs
Per Unit
$90
63
$27
$1,350,000
The following questions are independent from one to another.
i.
Compute the break even in units and dollars
(4 marks)
ii.
What would be the margin of safety if the company plans to sell 80,000 units per
year?
(4 marks)
iii. What is the total sales in units and dollars that must be generated for the company to earn
a profit of $60,000?
(6 marks)
iv. If the company is presently selling 75,000 units, but plans to spend an additional
$135,000 on an advertising program, how many additional units must the company sell to
earn the same net profit it is now making?
(4 marks)
v. Using the original data in the problem, compute a new break-even point in units if the
unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed
costs are increased by $198,000.
(6 marks)
vi. Explain any three assumptions that could have been used in using the concept of break
even in the company
