# BREAK-EVEN POINT. THE LAST OUTPOST IS A TOURIST STOP IN A WESTERN RESORT COMMUNITY.

The Last Outpost is a tourist stop in a western resort community. Kerry Yost, the owner of the shop, sells hand-woven blankets for an average price of \$30 per blanket. Kerry buys the blankets from weavers at an average cost of \$21. In addition, he has selling expenses of \$3 per blanket. Kerry rents the building for \$300 per month and pays one employee a fixed salary of \$500 per month.

Determine the number of blankets Kerry must sell to break even.
The company sells lawnmowers for \$895 each. The variable cost per lawnmower is \$520. The company’s monthly fixed costs are \$84,500. Using the C-V-P equation, compute the amount of profit the company will have for a month in which the company sells 375 lawnmowers.
The company has a variable cost ratio of 65% and monthly fixed costs of \$91,000. What is the company’s break-even point in terms of sales dollars?

Perrson Company makes two types of backpacks. Data for the company’s activity during a typical month are presented below:
School Hiker
Model Model
Sales units40,00040,000
Selling price per unit\$6\$18
Variable expense per unit\$2\$10
The company’s total fixed expenses are \$80,000. There are no beginning or ending inventories.
A. What is the per unit contribution margin for each of the two models?
B. What is the break-even point in terms of sales dollars if the sales mix remains constant?
Break-even point (in sales) = Fixed cost * selling price per unit
Contribution margin
C. If the sales mix is changed to 60,000 units of the school model and 20,000 units of the hiker model, what will be the break-even point in terms of sales dollars?

Berry Company produces a single product. The projected income statement for the coming year is as follows:
Sales (50,000 units @ \$45) \$2,250,000
Less: Variable costs 1,305,000
Contribution Margin \$ 945,000
Less: Fixed costs 812,700
Operating Income \$ 132,300

a. Compute unit margin and the units that must be sold to break even.
Answer: unit margin = \$18.90; Units to break even= 43,000
b. Suppose 30,000 units are sold above break even. What is the operating income?
c. Compute the contribution margin ratio and the break even point in dollars. Suppose that that revenue is \$200,000 more than expected. What would the total operating income be?
WHAT IS THE OPERATING INCOME IF THE REVENUE INCREASES BY \$200,000????

Calculate the accounting break-even point for the following firm: revenues of \$ 700,000, \$ 100,000 fixed costs, \$ 75,000 depreciation, 60% variable costs, and a 35 % tax rate. What happens to the break even if a trade -off is made which increases fixed costs by 30,000 and decreases variable costs to 50% of sales?

Hess, Inc. sells a single product with a contribution margin of \$12 per unit and fixed costs of \$74,400 and sales for the current year of \$100,000. How much is Hess’s break even point?
a. 4,600 units
b. \$25,600
c. 6,200 units
d. 2,133 units
Disney’s variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost \$22,000. If sales are expected to increase \$40,000, by how much will the company’s net income increase?
a. \$18,000
b. \$28,000
c. \$12,000
d. \$6,000

H55 Company sells two products, beer and wine. Beer has a 10 percent profit margin and wine has a 12 percent profit margin. Beer has a 27 percent contribution margin and wine has a 25 percent contribution margin. If other factors are equal, which product should H55 push to customers?
a. Beer
b. Wine
c. Selling either results in the same additional income for the company
d. It should sell an equal quantity of both.

Hartley, Inc. has one product with a selling price per unit of \$200, the unit variable cost is \$75, and the total monthly fixed costs are \$300,000. How much is Hartley’s contribution margin ratio?
a. 62.5%
b. 37.5%
c. 150%
d. 266.6%
Exercise for students:
Sunshine, Inc., sells a single product. The company’s most recent income statement is given below.

Sales (4,000 units)\$120,000
Less variable expenses(68,000)

Contribution margin52,000
Less fixed expenses(40,000)

Net income\$ 12,000

Required:
a.Contribution margin per unit is \$ _______________ per unit

b.If sales are doubled to \$240,000,
total variable costs will equal\$ _______________

c.If sales are doubled to \$240,000,
total fixed costs will equal\$ _______________

d.If Sunshine is past the breakeven point and
10 more units are sold, profits will increase by\$ _______________

e.Compute how many units must be sold to break even. # _______________

f.Compute how many units must be sold
to achieve a profit of \$20,000.# _______________