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Break-even Analysis for Product Sales

The document contains two examples calculating break-even points and safety margins for companies. The first example is for a company that manufactures carpet cleaners. It calculates that the break-even point in units is 20,000 and in dollars is $800,000. The safety margin is $800,000. The second example is for a company that manufactures three products. It calculates the break-even volume in units for each product as: Product A - 7,500 units, Product B - 4,500 units, Product C - 3,000 units.

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KaranSingh
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905 views2 pages

Break-even Analysis for Product Sales

The document contains two examples calculating break-even points and safety margins for companies. The first example is for a company that manufactures carpet cleaners. It calculates that the break-even point in units is 20,000 and in dollars is $800,000. The safety margin is $800,000. The second example is for a company that manufactures three products. It calculates the break-even volume in units for each product as: Product A - 7,500 units, Product B - 4,500 units, Product C - 3,000 units.

Uploaded by

KaranSingh
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Problem 1: Cost and Revenue Analysis
  • Problem 2: Product Mix and Break-even Analysis

1.

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called
the Snooper. Budgeted cost and revenue data for the Snooper are given below,
based on sales of 40,000 units.
Sales:
Less: Cost of goods sold
Gross margin
Less: Operating expenses
Net income

$1,600,000
1,120,000
$ 480,000
100,000
$ 380,000

Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed
costs. Operating expenses consist of $40,000 of variable costs and $60,000 of
fixed costs.
Required:
A. Calculate the break-even point in units and sales dollars.
B. Calculate the safety margin.
Answers:
A. Sales
Less: Variable costs ($800,000 + $40,000)
Contribution margin

$1,600,000
840,000
$ 760,000

Unit contribution margin: $760,000 40,000 units = $19


Break-even point in units: ($320,000 + $60,000) $19 = 20,000 units
Unit selling price: $1,600,000 40,000 units = $40
Break-even point in dollars: 20,000 units $40 = $800,000
B. Safety margin: $1,600,000 - $800,00 = $800,000
2.

Mueller Company manufactures and sells three products: A, B, and C. Annual fixed costs
are $3,630,000, and data about the three products follow.

Sales mix in units


Selling price
Variable cost

50%
$200
100

30%
$600
280

20%
$800
320

Required:
A. Determine the break-even volume in units for each product.

Answer:
Selling price
Less: Variable cost
Contribution margin
A: $100 x 50% =
B: $320 x 30% =
C: $480 x 20% =
Weighted-average CM

A
$200
100
$100

B
$600
280
$320

C
$800
320
$480

$ 50
96
96
$242

Break-even volume: $3,630,000 $242 = 15,000 units


A: 15,000 x 50% = 7,500 units
B: 15,000 x 30% = 4,500 units
C: 15,000 x 20% = 3,000 units

1. The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the “Snooper”. Budgeted cost and revenue
Answer: A B C Selling price $200 $600 $800 Less: Variable cost 100 280 320 Contribution margin

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