Case Study 6-32

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Exercise 6-7 Compute the Break-Even Point 1. The equation method yields the break-even point in unit sales, Q, as follows: | |Profit |= Unit CM × Q − Fixed expenses | | |$0 |= ($15 − $12) × Q − $4,200 | | |$0 |= ($3) × Q − $4,200 | | |$3Q |= $4,200 | | |Q |= $4,200 ÷ $3 | | |Q |= 1,400 baskets | 2. The equation method can be used to compute the break-even point in sales dollars as follows: [pic] | |Profit |= CM ratio × Sales − Fixed expenses | | |$0 |= 0.20 × Sales − $4,200 | | |0.20 × Sales |= $4,200 | | |Sales |= $4,200 ÷ 0.20 | | |Sales |= $21,000 | 3. The formula method gives an answer that is identical to the equation method for the break-even point in unit sales: [pic] 4. The formula method also gives an answer that is identical to the equation method for the break-even point in dollar sales: [pic] Exercise

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