1. Compute CollegePak’s break-even point in sales dollars for the year — Company produced and sold 000 backpacks during just ended average price per

CollegePak Company produced and sold 60,000 backpacks during the year just ended at an average price of $20 per unit. Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold. Fixed costs amounted to $180,000 for manufacturing and $72,000 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.)

1. Compute CollegePak’s break-even point in sales dollars for the year.

2. CollegePak’s variable manufacturing costs are expected to increase by 10 percent in the coming year. Compute the firm’s break-even point in sales dollars for the coming year. (Do not round intermediate calculations.)

3. If CollegePak’s variable manufacturing costs do increase by 10 percent, compute the selling price that would yield the same contribution-margin ratio in the coming year.

SOLUTION

1. Computation of the Break Even point in Sales dollars for the year in Detail

Formula

Break-even in sales dollars = Total Fixed Costs/ ((Contribution margin/unit)/Sales price/unit))

Break-even in sales dollars = ($180,000 + $72,000)/(($20-$8-$4)/$20)

Break-even in sales dollars = $252,000/ ($8/$20)

Break-even in sales dollars = $252,000/.40

Break-even in sales dollars = $630,000

Hence the Break even in sales dollars $630,000

2. Computation of the breakeven point

New variable manufacturing costs = Old variable manufacturing costs*1.10

New variable manufacturing costs = $8.00*1.10

New variable manufacturing costs = $8.80