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Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of the following:
Selling price of $1,000 and variable (flexible) costs of $400. Total fixed (capacity-related)
costs for Bridal Shoppe are $90,000.
A. What is the Bridal Shoppe’s total profit when 200 dresses are sold?
B. How many dresses must Bridal Shoppe sell to reach the breakeven point?
X = $90,000/$600
X = 150 dresses
C. How many dresses must Bridal Shoppe sell to yield a profit of $60,000?
QUESTION 2
Northenscold Company sells several products. Information of average revenue and costs are as
follows:
1. Calculate the number of units Northenscold’s must sell each year to break even.
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2. Calculate the number of units Northenscold’s must sell to yield a profit of $144,000.
QUESTION 3
Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a
selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed
selling and administrative costs total $2,500.
N = Breakeven in phones
$100N - $50N - $10N - $1,250 - $2,500 = 0
$40N - $3,750 = 0
N = $3,750 / $40 = 93.75 phones
Breakeven Point = 94 phones
N = Phones to be sold
$100N - $50N - $10N - $1,250 - $2,500 = $7,500
$40N = $11,250
N = $11,250 / $40 = 281.25 phones
To achieve target profit: Must sell 282 phones
2. At the breakeven point of 200 units, variable costs total $400 and fixed costs total $600. The
201st unit sold will contribute ___________ to profits.
a. $1
b. $2
c. $3
d. $5
$1,000 – $400 – $600 = 0; Sales ($1,000 / 200) – Variable costs ($400 / 200) = $3 CM
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3. Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The
breakeven point in sales dollars is:
a. $200,000
b. $120,000
c. $ 40,000
d. $ 30,000
4. What is the breakeven point in units, assuming a product's selling price is $100, fixed costs are
$8,000, unit variable costs are $20, and operating income is $32,000?
a. 100 units
b. 300 units
c. 400 units
d. 500 units
5. If breakeven point is 100 units, each unit sells for $30, and fixed costs are $1,000, then on a
graph the:
a. total revenue line and the total cost line will intersect at $3,000 of revenue
b. total cost line will be zero at zero units sold
c. revenue line will start at $1,000
d. All of these answers are correct.
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Beta Company sells blouses in Washington, USA. Blouses are imported from Pakistan and
are sold to customers in Washington at a profit. Salespersons are paid basic salary plus a
decent commission on sales made by them. Sales and expense data is given below:
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(3) Break-even point if manager is also paid a commission of $6 per blouse sold:
The payment of a commission of $6 to manager will decrease the unit contribution margin
and increase the number of units required to sell to break-even.
$600,000 / $24
25,000 Units
Now the company requires 25000 units or $2,000,000 in sales just to break-even.
(4) Effect on net operating income or loss if manager is paid a commission of $6 on
each blouse sold after break-even point:
Sales (23,500 × $80) $ 1,880,000
Less variable expenses (23,500 ×
1,175,000
$50)
————
705,000
Less manager’s commission
21,000
[(23,500 - 20,000) × 6]
————
684,000
Fixed expenses 600,000
————
Net operating income 84,000
————
(5) Break-even point after elimination of commission and increase in salaries:
$814,000 /$44
18,500 units
or
18,500 × $80 = $14,80,000
Fixed cost after change: $600,000 + 214,000 = 814,000
Unit contribution margin after change: $80 – $36 = $44
With the new system, Beta company will start making profits after selling $18,500 units but
with the old system company needs to sell 20,000 units before making any profit. The change
should, therefore, be implemented.