What is the breakeven point in sales units and sales

Question

Peerless Company has a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Variable selling and administrative costs are $5 per unit, and fixed selling and administrative costs are $300,000 per year. The current sales price is $36 per unit.

Required

1. What is the breakeven point in (a) sales units and (b) sales dollars?

2. How many units must Peerless Company sell to earn a profit of $600,000 per year?

3. A strike at one of the company's major suppliers has caused a shortage of materials, so the current year's production and sales are limited to 400,000 units. To partially offset the effect of the reduced sales on profit, management is planning 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 margin 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?

Answer 1

Be sure to read all questions below and as per instruction given, solve and provide answers by showing the whole computation part. Q1. Peerless Company consists of a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per unit. The fixed overhead is $900,000 per year. Variable selling and administrative costs are $5 per unit and fixed selling and administrative costs $300,000 annually with present sales price $36 per unit. Determine breakeven point in Sales units and Sales dollars? Q2. Strike at one of company's main suppliers has caused scarcity of materials, therefore the present year's production and sales are restricted to 400,000 units. To partially offset the effect of decreased sales on profit, management is planning to decrease fixed costs to $1,000,000. Variable cost per unit is similar as last year. The company already sold 30,000 units at usual selling price of $36 per unit. Find amount of fixed costs.