Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

Short Answer

Expert verified

Answer

  1. Equation approach
  2. Contribution margin approach
  3. Contribution margin ratio approach

Step by step solution

01

Step 1:three approaches to calculating the sales required to achieve the breakeven point

  1. Equation approach
  2. Contribution margin approach
  3. Contribution margin ratio approach
02

Formula for three approaches

  1. The equation approach:

Operating income= Net sales revenue โ€“ Total costs

  1. Contribution margin approach:

Required sales in units = Fixed costs + Target profit /Contribution Margin Per unit

  1. Contribution margin ratio approach

Contribution margin ratio = Fixed costs + Target profit / Contribution margin ratio

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is cost stickiness? Why do managers need to be aware of cost stickiness?

Question: Steve and Linda Hom live in Bartlesville, Oklahoma. Two years ago, they visited Thailand. Linda, a professional chef, was impressed with the cooking methods and the spices used in Thai food. Bartlesville does not have a Thai restaurant, and the Homs are contemplating opening one. Linda would supervise the cooking, and Steve would leave his current job to be the maรฎtre dโ€™. The restaurant would serve dinner Tuesday through Saturday. Steve has noticed a restaurant for lease. The restaurant has seven tables, each of which can seat four. Tables can be moved together for a large party. Linda is planning on using each table twice each evening, and the restaurant will be open 50 weeks per year. The Homs have drawn up the following estimates:

Average revenue, including beverages and desserts \( 45 per meal Average cost of food 15 per meal Chefโ€™s and dishwasherโ€™s salaries 5,100 per month Rent (premises, equipment) 4,000 per month Cleaning (linen, premises) 800 per month Replacement of dishes, cutlery, glasses 300 per month Utilities, advertising, telephone 2,300 per month

Requirements

1. Compute the annual breakeven number of meals and sales revenue for the restaurant.

2. Compute the number of meals and the amount of sales revenue needed to earn operating income of \)75,600 for the year.

3. How many meals must the Homs serve each night to earn their target profit of $75,600?

4. What factors should the Homs consider before they make their decision as to whether to open the restaurant?

Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit

Compute the missing amounts for the following table.

A B C Sales price per unit 200 4,000 $ 5,220 Variable costs per unit 80 1,000 2,088 Total fixed costs 73,200 660,000 3,758,400 Target profit 266,760 3,000,000 3,132,000 Calculate: โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ

Contribution margin per unit โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ

Contribution margin ratio โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ

Required units to break even โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒโ€ƒโ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ โ€ƒ

Required sales dollars to break even

Required units to achieve target profit

Question: This problem continues the Piedmont Computer Company situation from Chapter 19. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is 750andtheweighedโˆ’averagevariablecostperunitis450. The company does not expect the sales mix to vary for the next year. Average fixed costs per month are \(156,000.

Requirements

1. What is the number of units that must be sold each month to reach the breakeven point?

2. If the company currently sells 945 units per month, what is the margin of safety in units and dollars?

3. If Piedmont Computer Company desires to make a profit of \)15,000 per month, how many units must be sold?

4. Piedmont Computer Company thinks it can restructure some costs so that fixed costs will be reduced to 90,000permonth,buttheweightedโˆ’averagevariablecostperunitwillincreaseto525 per unit. What is the new breakeven point in units? Does this increase or decrease the margin of safety? Why or why not?

A furniture manufacturer specializes in wood tables. The tables sell for 100perunitandincur40 per unit in variable costs. The company has 6,000infixedcostspermonth.Thecompanydesirestoearnanoperatingprofitof12,000 per month.

10. Calculate the required sales in units to earn the target profit using the equation method.

11. Calculate the required sales in units to earn the target profit using the contribution margin method.

12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.

13. Calculate the required sales in units to break even using the contribution margin method.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free