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Calculate the breakeven point in units and in dollar

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Reference no: EM132438338

Redwood Ltd has collected the following information for its first year of operations:

Sales (100,000 units) $1,600,000

Selling expenses (40% variable and 60% fixed) 240,000

Direct materials    511,000

Direct labour    285,000

Administrative expenses (20% variable and 80% fixed)    280,000

Manufacturing overhead (70% variable and 30% fixed)    360,000

The managing director of the company has asked that you undertake a cost-volume-profit (CVP) analysis to assist with planning.

Requirements

(a) Calculate the breakeven point in units and in dollar for the first year of operations.

(b) The company has set a target profit (net income) of $310,000 for next year. What is the required sales in dollars for the company to achieve this target? (It may be assumed that selling price, variable costs per unit, and fixed costs will remain the same as for the first year of operations.)

(c) Assuming that the company meets its target profit (net income) for next year, what will its margin of safety ratio be?

Reference no: EM132438338

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