Week 5 Assignment

Instructor Assignment # 1.



1. Alex Miller, Inc., sells car batteries to service stations for an average of $30 each.   The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000.   Other monthly fixed costs of the company total $8,000.

Required:

a. What is the breakeven point in batteries?
b. What is the margin of safety, assuming sales total $60,000?
c. What is the breakeven level in batteries, assuming variable costs increase by 20%?
d. What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed manufacturing costs decline by 10%, and other fixed costs decline by $100?

            Answer:

  a. The breakeven point in batteries is:
$30X-$20X-$18,000=0
$10X-$18,000=0
$10X=$18,000
X=$18,000/$10
X=1,800 batteries
The breakeven point in batteries is 1,800 batteries.

  b. The margin of safety, assuming sales total $60,000 is:
$30*1,800 batteries=$54,000
$60,000 – ($54,000)
The Margin of safety assuming sales total $60,000 is $6,000.

  c. The breakeven level in batteries, assuming variable costs increase by 20% is:
VC=$20*1.20
VC=$24
$30X-$24X-$18,000=0
$6X-$18,000=0
$6X=$18,000
X=$18,000/$6
X=3,000 batteries.
The breakeven level in batteries, assuming variable costs increase by 20% is 3,000 batteries.

  d. SP=$30*1.10
SP=$33
Manufacturing FC=$10,000*0.90
Manufacturing FC=$9,000
OtherFC=$8,000-$100
OtherFC=$7,900
$33X-$20X-$9,000-$7,900=0
$13X-$16,900=0
$13X=$16,900
X=$16,900/$13
X=1,300 batteries
The breakeven level in batteries, assuming the selling price goes up by 10%, fixed manufacturing costs decline by 10%, and other fixed... [continues]

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