Managerial Accounting Practice

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

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    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

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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

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            $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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