# Accounting Final

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3- calculate breakeven point ?

PROBLEM 8-35
Surreal Sound, Inc. manufactures and sells compact disks. Price and cost data are as follows:
Selling price per unit (package of two CDs)

\$ 25.00

Variable Costs per unit:
Direct Materials

\$ 8.20

Direct Labour

4.00

6.00

Selling Expenses

1.60

Total Variable Costs per Unit

\$19.80

Annual Fixed Costs

\$288,000

414,000

Total Fixed Costs

\$ 702,000
\$ 3,500,000

Forecasted Annual Sales Volume (140,000 units)

Required:
1

What is Surreal‟s break even point in units?

2

What is the company‟s break even point in sales dollars?

3

How many units would Surreal Sound have to sell in order to earn \$
390,000?

4

What is the firm‟s margin of safety?

5

Management estimates that direct labour costs will increase by 10% next year.
How many units will the company have to sell next year to reach its break even point? 6

If the company‟s direct labour costs do increase by 10 percent, what selling price per unit of product must it charge to maintain the same contribution margin ratio?

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fixed costs unit contribution margin
\$702,000

 135,000 units
\$25.00  \$19.80

1.

Break - even point (in units) 

2.

Break - even point (in sales dollars) 

3.

Number of sales units required to earn target net profit

4.

Margin of safety = budgeted sales revenue – break-even sales revenue

fixed cost contribution - margin ratio
\$702,000

 \$3,375,000
\$25.00  \$19.80
\$25.00

fixed costs  target net profit unit contribution margin
\$702,000  \$390,000

 210,000 units
\$25.00  \$19.80

= (140,000)(\$25) – \$3,375,000 = \$125,000
5.

Break-even point if direct-labor costs increase by 10

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