Genifax reported the following information for September:

Sales revenue

Fixed manufacturing costs

Fixed marketing and overhead costs

Total variable costs

Unit price

$180,000

28,000

20,000

120,000

9

a. Determine the unit sales required to break even. Unit sales units

b. What unit sales would generate a net income of $33,000? Unit sales units

c. What unit sales would generate a profit of 20% of the sales revenue? Unit sales units

d. What sales revenue is required to produce a profit of $20,000? (Round your answer to the nearest hundred.) Sales revenue $

e. If unit variable costs are reduced by 10% with no change in the fixed costs, what will be the unit sales to break even? (Round your answer UP to the nearest whole number.) Unit sales units

Ans:

Working 1 :

Number of units sold = sales revenue / unit price

= $ 180000 / $ 9

= 20000 units

Working 2 :

Profit volume ratio = Contribution / Sales revenue

Contribution = Sales - variable cost

= $ 180000 - $ 120000 = $ 60000

Profit volume ratio = $ 60000/ $ 180000

= 0.33 ( which means 1/3)

a) 16000 units

Break even point ( sales units) = Fixed cost / Contribution per unit

Fixed cost = $ 28000 + $ 20000 = $ 48000

Contribution = Sales revenue - Variable cost

= $ 180000 - $ 120000 = $ 60000

Contribution per unit = $ 60000 / 20000 units

= $ 3

Break even sales ( in units) = $ 48000 / $ 3

= 16000 units

b) 27000 units

Required sales ( units) = (Fixed cost + Desired net income) / Contribution per unit

= $ 48000+ $ 33000/ $ 3

= 27000 units

c) 28000 units

Desired profit = 20% of sales revenue

= $ 180000 * 20 % = $ 36000

Required sales ( in units ) = (Fixedcost + Desired profit / Contribution per unit)

= $ 48000+ $ 36000/ $ 3

= 28000 units

d) $ 204000

Required sales(value)= (Fixed cost+ Desired profit / profit volume ratio)

Profit volume ratio = 1/3 ( working note 2)

Sales revenue = $ 48000 + $ 20000 / (1/3)

= $ 68000 * 3 / 1

= $ 204000

e) 13333 units

Break even sales ( units) =

Fixed cost/ Contribution per unit

Contribution = Sales revenue - Variable cost

Variable cost = $ 120000 - ($ 120000*10/100)

= $ 108000

Contribution = $ 180000 - $ 108000 = $ 72000

Contribution per unit = Contribution / sale units

= $ 72000 / 20000 units (working 1)

= $ 3.6

Break even sales ( units) as reduced by 10% variable cost = $ 48000 / $ 3.6

= 13333 units ( rounded off)