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...

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