Answered Essay: At a level of 20,009 units sold, Gail Corp has sales of $400,0oo, a contribution margin ratio Gail Corp has sales of 400,000, a contribution margin ratio of 40%, and a profit of $40,000. What is the break-even point in units? A. 12,000 B. 8,000 C. 20,000 D. 15,000

 At a level of 20,009 units sold, Gail Corp has sales of $400,0oo, a contribution margin ratio Gail Corp has sales of 400,000, a contribution margin ratio of 40%, and a profit of $40,000. What is the break-even point in units? A. 12,000 B. 8,000 C. 20,000 D. 15,000

Expert Answer

 

7 Option (d)
Given Data
Unit sold 2000
Sales $ 200,000
Contribution Margin Ratio 40%
Profit $40,000
Break Even point ?
Solution
Break Even Point in unit = Fixed Cost / Contribution per Unit
= $ 120,000 / $ 8
= 15,000 Unit
working Note No 1
Contribution Margin = Contribution / Sales
0.4 = Contribution / $ 400,0000
Contribution = $ 160,000
Contribution Per Unit = Contribution / Unit
$ 160,000 / 20000 = $ 8 per unit
working Note No 2
Contribution = Fixed Cost + Profit
$ 160,000 = Fixed Cost + $ 40,000
Fixed Cost = $ 120,000
10 Option (c)
Contribution = Fixed Cost + Profit
Now $ 450,000 = $ 300,000 + $ 150,000
If sales is increased by 20 % then Contribution will also increased by 20%
After Increase contribution would be $ 450,000+20% x $450,000
=   $ 540,000
After Change
Contribution = Fixed Cost + Profit
$ 540,000 = $ 300,000 + profit
Profit = $ 240,000
Increase in profit
($ 240,000- $ 150,000)/ $ 150,000
=   60 %
15 Option (b)
If jones Division is dropped
Sales $ 800,000
Less variable Cost $ 600,000
Contribution Margin $ 200,000
Less : -Fixed Cost $ 300,000
($150,000+$150,000)
Loss $ 100,000
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