How to Make a Budget - NerdWallet

Section 1 

Maximum sales capacity per year = 200,000 units 

Variable manufacturing cost per unit = $ 12 

Fixed overheads per year = $600,000 

Variable selling and administrative costs per unit = $5 

Fixed selling and administrative costs per year = $300,000 

Selling price per unit = $23 

the break-even point in sales units 

Break-even point represents the sales amount either in units (quantity) or in revenue (sales)terms that is required to cover the total costs incurred comprising of both fixed and variable costs incurred by the company. Thus, at break-even point total profit is equals zero. 

Break-even point in sales units = Fixed costs/ Sales price per unit – variable cost per unit 

Fixed costs = $600,000+$300,000 = $ 900,000 

Sales price per unit = $23 

Variable cost per unit = $12+$5 = $17 

Therefore: Break-even point in units = $900,000/$23-$17 

Break-even point in units = $900,000/$6 = 150,000 units 

The break-even point in sales dollar 

Break-even Sales Dollars = Fixed costs/ contribution margin ratio 

Contribution sales margin ratio = contribution margin/ Unit sales price 

Contribution margin = $23- $17 = $6 

Contribution margin ratio =$ 6/$ 23 = 26.087 % 

Break-even Sales Dollars = 900,000/0.26087 = $ 3,450,000 

Number of units the company should sell to earn a profit of $240,000 per year 

Sales = Variable expenses + Fixed expenses + Profits 

$23X = $17X +$900,000+$240,000 

$23X-$17X = $900,000+$240,000 

$6X = $ 1,140,000 

X =$1,140,000/$6 

X =190,000 units 

Section 2 

Maximum sales capacity for current year = 160,000 units 

Total fixed costs for current year = $ 841,000 

Variable unit cost for current year = $ 17 

Units already sold at regular price of $ 23 per unit = 30,000 units 

Fixed costs covered in the first 30, 000 units sold 

Contribution = $23-$17 = $6 

Fixed costs already covered = 30,000 * $6 = $180,000 

Fixed costs to be covered by the remaining 130.000 units 

Total fixed costs – Fixed costs already covered 

$841,000 - $ 180,000 = $661,000 

Contribution margin required to cover the remaining 130,000 units 

Contribution margin per unit = Remaining fixed costs + profit to be earned/sales units 

= $661,000 + $210,000/130, 000 

= $871,000/130,000 

Contribution margin per unit = $ 6.7 per units