For the past year, Hornbostel Company had fixed costs of $6,552,000, a unit variable cost of $444, and a unit selling price of $600. For the coming year, no changes are expected in revenues and costs, except that a new wage contract will increase variable costs by $6 per unit. Determine the break-even sales (units) for the following:
a. Past year units
b. Coming year units
Past year units
6552000/(600-444) = 42000 units
Coming year units
655200/ (600-450) = 43680 units
Currently, the unit selling price is $50, the variable cost, $34, and the total fixed costs, $106,000. A proposal is being evaluated to increase the selling price to $54.
To determine the break-even sales (units) for both the past year and the coming year, we can use the formula:
Break-even sales (units) = Fixed costs / (Selling price per unit - Variable cost per unit)
a. Past year break-even sales (units):
Fixed costs = $6,552,000
Variable cost per unit = $444
Selling price per unit = $600
Break-even sales (units) = $6,552,000 / ($600 - $444)
Calculating the numerator: $6,552,000 / $156 = 42,000 units
Therefore, the break-even sales for the past year is 42,000 units.
b. Coming year break-even sales (units):
Fixed costs remain the same: $6,552,000
Variable cost per unit increases by $6: $444 + $6 = $450
Selling price per unit remains the same: $600
Break-even sales (units) = $6,552,000 / ($600 - $450)
Calculating the numerator: $6,552,000 / $150 = 43,680 units
Therefore, the break-even sales for the coming year is 43,680 units.
To determine the break-even sales units, we need to find the point at which the total revenue equals the total cost, meaning there is neither a profit nor a loss.
First, let's calculate the break-even point for the past year in units (a):
To calculate the break-even point, we can use the formula: Break-even point (in units) = Fixed costs / (Selling price per unit - Variable cost per unit)
a. For the past year:
Fixed costs = $6,552,000
Variable cost per unit = $444
Selling price per unit = $600
Break-even point (in units) = $6,552,000 / ($600 - $444)
= $6,552,000 / $156
= 42,000 units
Therefore, the break-even sales for the past year were 42,000 units.
Now, let's calculate the break-even point for the coming year in units (b):
Since no changes are expected in revenues and costs, except for an increase in variable costs by $6 per unit due to a new wage contract, we can use the same formula as before.
b. For the coming year:
Fixed costs = $6,552,000
Variable cost per unit = $444 + $6 (increase due to new wage contract) = $450
Selling price per unit = $600
Break-even point (in units) = $6,552,000 / ($600 - $450)
= $6,552,000 / $150
= 43,680 units
Therefore, the break-even sales for the coming year are projected to be 43,680 units.