ACC202 Managerial Accounting, Budgeting

Scenario A: Break-Even Point in Sales Dollars
Given:
Fixed Costs = $200,000
Contribution Margin Ratio = 10%
Break-Even Point Calculation:
The formula to calculate the break-even point in sales dollars is:
Break-Even Sales= Fixed Costs /Contribution Margin Ratio
Break-Even Sales=200,000/0.10=2,000,000
Table:
Fixed Costs
Contribution Margin Ratio
Break-Even Sales ($)
$200,000
10%
$2,000,000
Interpretation: The data reveals a compelling scenario. To offset fixed costs amounting to $200,000, the company f
need of a substantial $2 million in sales revenue, thanks to a contribution margin of just 10%. Picture this as a high-a
stakes game where every dollar counts; achieving this sales target means the company will hover at the break-even po
neither enjoys the sweet taste of profit nor faces the sting of loss. It’s a precarious balance, a tightrope walk on the fin
where success and failure are separated by a thin line of revenue.
Scenario B: Break-Even Units for Danny Company
Given:
Selling Price per Unit = $28
Fixed Costs = $120,000 per month
Variable Cost per Unit = $12
Break-Even Point Calculation:
The formula to calculate the break-even point in units is:
Break-Even Units= Fixed Costs /Selling Price per Unit−Variable Cost per Unit
Even Units=120,000/28−12
=120,000/16
=7,500
Table:
Fixed Costs Selling Price per
Unit ($)
Variable Cost per Unit Contribution Margin per
($)
Unit ($)
$120,000
$12
$28
$16
Interpretation: The table vividly illustrates that Danny’s Company faces the pressing requirement of producing and
Panda Bears each month to break even. This pivotal number reflects the meticulous balance necessary to cover both f
variable costs, ensuring that the company neither profits nor incurs losses. It’s a fascinating snapshot of the financial l
revealing the challenges and strategies involved in achieving fiscal stability.
cenario C: Break-Even Analysis for Jerry’s Potential Purchase
Given:
Selling Price per Unit = $5
Volume and Total Costs:
o
8,000 units = $70,000
o
68,000 units = $190,000
Step 1: Determine Variable Cost per Unit (Using the High-Low Method)
Variable Cost per Unit=Change in Total Cost/Change in Volume
Variable Cost per Unit=190,000−70,000/68,000−8,000
=2 dollars per unit
Step 2: Determine Fixed Costs
Using the total cost equation for the high or low activity level:
Fixed Costs=Total Cost−(Variable Cost per Unit×Volume)
Using 8,000 units:
Fixed Costs=70,000−(2×8,000)=70,000−16,000=54,000
Break-Even Sales:
Break-Even Sales=54,000/0.6=90,000
Table:
Volume
(Units)
Total Cost
($)
Variable Cost per
Unit ($)
Fixed Costs Contribution Margin
($)
Ratio
Break-Even
Sales ($)
8,000
70,000
$2
$54,000
$90,000
68,000
190,000
60%
Interpretation: The analysis reveals a striking conclusion; Jerry’s company must generate a minimum of $90,000 in
to each the critical point of breaking even. Given that Jerry’s requirement is to break even on $100,000 in revenue, th
meets this criterion. Therefore, the company is a viable option for purchase if the revenue expectation is $100,000 pe
more. This figure encapsulates the complex interplay of costs and revenues underscoring the financial strategies that
employed to maintain equilibrium in the face of market fluctuations.
ting to $200,000, the company finds itself in
ust 10%. Picture this as a high-achieving
y will hover at the break-even point, where it
ance, a tightrope walk on the financial ledger,
Break-Even
Units
7,500
g requirement of producing and selling 7,500
balance necessary to cover both fixed and
nating snapshot of the financial landscape,
Break-Even
Sales ($)
$90,000
nerate a minimum of $90,000 in montly sales
even on $100,000 in revenue, the company
enue expectation is $100,000 per month or
ring the financial strategies that must be