Reference no: EM132534319
Bar Company has a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Variable selling and administrative costs are $5 per unit, and fixed selling and administrative costs are $300,000 per year. The current sales price is $36 per unit.
Required
Question 1. What is the breakeven point in (a) sales units and (b) sales dollars?
Question 2. Business Application: How many units must Bar Company sell to earn a profit of $600,000 per year?
Question 3. Business Application : A strike at one of the company's major suppliers has caused a shortage of materials, so the current year's production and sales are limited to 400,000 units. To partially offset the effect of the reduced sales on profit, management is planning to reduce fixed costs to $1,000,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $36 per unit.
a. What amount of fixed costs was covered by the total contribution margin of the first 30,000 units sold?
b. What contribution margin per unit will be needed on the remaining 370,000 units to cover the remaining fixed costs and to earn a profit of $290,000 this year?
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