Breakeven Analysis and Planning Future Sales
P9. PeerlessCompanyhasamaximumcapacityof500,000unitsperyear.Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Vari able selling and administrative costs are $5 per unit, and fixed selling and adminis trative costs are $300,000 per year. The current sales price is $36 per unit.
Required
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What is the breakeven point in (a) sales units and (b) sales dollars?
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How many units must Peerless Company sell to earn a profit of $600,000
per year?
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Astrikeatoneofthecompany%u2019smajorsuppliershascausedashortageofmate
rials, so the current year%u2019s production and sales are limited to 400,000 units. To partially offset the effect of the reduced sales on profit, management is plan ning to reduce fixed costs to $1,000,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $36 per unit.
a. What amount of fixed costs was covered by the total contribution mar gin of the first 30,000 units sold?
b. What contribution margin per unit will be needed on the remaining 370,000 units to cover the remaining fixed costs and to earn a profit of $300,000 this year?