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Hello Carl;
Ref: Managerial Accounting Practice IP5
Following your email on the operations you have undertaken in your company, I am glad to take this opportunity to analyze California Container division’s breakeven point. The company produces packaging for cell phone; therefore its calculations will be as follows:
a) Old break even quantity
Sales = $3.24 per unit
V.C = $1.37 per unit
F.C = $257,000
Sales = Variable Costs (VC) + Fixed expenses (FC) + Profit
Let Quantity be Q;
$3.24Q = $1.37Q + $127,000 + $0
$1.87Q = $127,000
Q = 67, 915 units
b) New Break even quantity
Sales = $3.24 per unit
V.C = $1.52 per unit
F.C = $257,000
Sales = Variable Costs (VC) + Fixed expenses (FC) + Profit
Let Quantity be Q;
$3.24Q = $1.52Q + $127,000 + $0
$1.72Q = $127,000
Q = 73,837 units
c) Sales = Variable Costs (VC) + Fixed expenses (FC) + Profit
Old profit = Sales – VC –FC= (3,300,000 * 3.24) – (1.37 * 3,300,000) – 257,000= $5,914,000
For the same profit to be realized, due to increase in variable costs, number of packages need to be increased.
Profit = Sales – VC – FC
$5,914,000 = $3.24Q -$1.52Q - $127,000
$1.72Q = $6,041,000
Q = 3,512,210 packages
Therefore the company needs 212,210 (3,512,210 – 3,300,000) more packages in order to realize the same profit.
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