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Breakeven Problems - Solutions

This document contains several examples of breakeven analysis calculations: 1) It provides the formula for calculating the operating breakeven point and applies it to a example where the fixed costs are $16,500, price is $20 per unit and variable costs are $8 per unit, resulting in a breakeven point of 1,375 units. 2) It calculates the breakeven points for a company's current and new production processes, finding that the new process lowers the breakeven point by 161 boxes. 3) It shows an algebraic representation of the breakeven point formula and calculates it numerically for a example with fixed costs of $473,000, price of $129 and

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renee Benjamin-Gibbs
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26 views2 pages

Breakeven Problems - Solutions

This document contains several examples of breakeven analysis calculations: 1) It provides the formula for calculating the operating breakeven point and applies it to a example where the fixed costs are $16,500, price is $20 per unit and variable costs are $8 per unit, resulting in a breakeven point of 1,375 units. 2) It calculates the breakeven points for a company's current and new production processes, finding that the new process lowers the breakeven point by 161 boxes. 3) It shows an algebraic representation of the breakeven point formula and calculates it numerically for a example with fixed costs of $473,000, price of $129 and

Uploaded by

renee Benjamin-Gibbs
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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E13-1.

Breakeven analysis
Answer: The operating breakeven point is the level of sales at which all fixed and variable operating
costs are covered and EBIT is equal to $0.
Q  FC  (P – VC)
Q  $16,500  ($20  $8)  1,375 units

E13-2. Changing costs and the operating breakeven point


Answer: Calculate the breakeven point for the current process and the breakeven point for the new
process, and compare the two.
Current breakeven: Q1  $15,000  ($6.00  $2.50)  4,286 boxes
New breakeven: Q2  $16,500  ($6.50  $2.50)  4,125 boxes
If Great Fish Taco Corporation makes the investment, it can lower its breakeven point by
161 boxes.

P13-3. Breakeven point—algebraic and graphical


LG 1; Intermediate
a. Q  FC  (P  VC)
Q  $473,000  ($129  $86)
Q  11,000 units
b.

P13-5. Personal finance: Breakeven analysis


LG 1; Easy
a. Breakeven point in months  fixed cost ÷ (monthly benefit – monthly variable costs)
$500  ($35  $20)  $500  $15  33 1/3 months
b. Install the Geo-Tracker because the device pays for itself over 33.3 months, which is less
than the 36 months that Paul is planning on owning the car.
P13-8. EBIT sensitivity
LG 2; Intermediate
a. and b.
8,000 Units 10,000 Units 12,000 Units
Sales $72,000 $90,000 $108,000
Less: Variable costs 40,000 50,000 60,000
Less: Fixed costs 20,000 20,000 20,000
EBIT $12,000 $20,000 $ 28,000

c.
Unit Sales 8,000 10,000 12,000
Percentage (8,000  10,000)  10,000 (12,000  10,000)  10,000
Change in
unit sales  20% 0  20%
Percentage (12,000  20,000)  20,000 (28,000  20,000)  20,000
Change in
EBIT   40% 0  40%

d. EBIT is more sensitive to changing sales levels; it increases/decreases twice as much as


sales.

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