Bros Inc sells a single product. Their most recent income statement is given below: Sales (4,000...

Question:

Bros Inc sells a single product. Their most recent income statement is given below:

Sales (4,000 units) 120,000 usd

Less: Variable Expenses (68,000)

Contribution Margin 52,000

Less: Fixed Expenses (40,000)

Net Income 12,000 usd

Questions:

1. Contribution margin per unit:

2. If sales doubled to 240,000 usd, total variable costs will equal what?

3. If sales doubled to 240,000 usd, total fixed costs will equal?

4. If 10 more units are sold, profits increase by?

5. Compute how many units must be sold to break even.

Break-Even Analysis:

Break-even analysis looks at how many units/dollars needed to sell in order to achieve no profit or loss. Any amount of sales over the break-even amount will result in a profit. Any sales below will result in a loss.

Answer and Explanation: 1

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1.

Contribution Margin = Sales - Variable Costs
(120,000 / 4,000) - (68,000 / 4,000) = $13

2.

Variable costs increase as sales increases per level...

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Break-Even Analysis: Definition & Example

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Chapter 4 / Lesson 3
11K

A break-even analysis utilizes a price calculation formula to determine how much product a business must sell and at what price in order to make a profit. Learn how to apply this analysis through examples with fixed and variable costs, and discover the importance of a margin of safety.


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