Question

Problem 5-30 Graphing; Incremental Analysis; Operating Leverage [LO5-2, LO5-4, LO5-5, LO5-6, LO5-8][The following information applies to the questions displayed below.] Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store: Sales price per pair of sandals$40Variable expenses per pair of sandals 20Contribution margin per pair of sandals$20Fixed expenses per year: Building rental$10,000Equipment depreciation 8,000Selling 8,000Administrative 14,000Total fixed expenses$40,000Problem 5-30 Part 1Required:1. What is the break-even point in unit sales and dollar sales? (Do not round intermediate calculations.)

Answer 1

Answer:

Break Even Point

In Units = 2,000 units

In value = $80,000

Explanation:

Break even Point = $\frac{Fixed\ Cost}{Contribution}$

When we use contribution per unit, we get the break even point in units sales.

When we use the contribution margin as a percentage of sales we get break even sales in value.

Contribution per unit = $20

Contribution margin in percentage = $20/$40 = 50%

Therefore, Break even Point in units = $\frac{40,000}{20} = 2,000$

Break even units = 2,000

Break Even Point in value = $\frac{40,000}{0.50} = 80,000$

Sales to be made in value at break even = $80,000