question archive For this week’s reflection, please write three complete and well composed paragraphs (in your own words) explain how to compute the answer to the following problem: Phan Incorporated has annual fixed costs totaling $6,000,000 and variable costs of $350 per unit
For this week’s reflection, please write three complete and well composed paragraphs (in your own words) explain how to compute the answer to the following problem: Phan Incorporated has annual fixed costs totaling $6,000,000 and variable costs of $350 per unit
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For this week’s reflection, please write three complete and well composed paragraphs (in your own words) explain how to compute the answer to the following problem:
Phan Incorporated has annual fixed costs totaling $6,000,000 and variable costs of $350 per unit. Each unit of product is sold for $500.
Required:
a. Calculate the contribution margin per unit.
b. Find the break-even point in units.
c. How many units must be sold to earn an annual profit of $750,000?
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Answer:
| Contribution Margin per unit = | Sales per unit - VC per unit |
| 500-350 | |
| 150 | |
| Break even Point(Units) = | Fixed Expenses/CM per unit |
| 6000000/150 | |
| 40000 | |
| Sales - VC - FC = | Profit |
| 500X - 350X - 6000000 = | 750000 |
| 150X = | 6750000 |
| X = | 45000 |
| Contribution margin gives you that after covering variable expenses , each product will contribute $ 150 towards Fixed Expenses |
| This is calculated by deducting variable cost per product from the sale price per product. |
| Breakeven point in units is the number of products that we should produce to cover the variable expense and fixed expenses. |
| This is calculated by dividing total fixed cost by the contribution margin per unit. |
| In given case we need to find out number of units of product that we should produce to earn a profit if $ 750,000 ; this we can find out by calculating |
| number of units using formula for profit. (Sales- VC - FC = Profit) |
