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Calculate the break-even point in units and dollars

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Reference no: EM133053394

Question - Eye and View Ltd manufactures and sells lamps. The following information relates to the year ended 30 June 2020:

The company sells each lamp for $75

Annual volume = 1,000 units

Manufacturing costs:

Direct material $25 per unit

Direct Labour $10 per unit

Variable manufacturing overhead $15 per unit

Fixed administrative costs $20,000 per year

a) Calculate the contribution margin per unit.

b) Calculate the break-even point in units and dollars.

c) Calculate the margin of safety in units and dollars.

d) Based on the annual volume given, calculate the net profit for the year ending 30 June 2020.

e) A new initiative is planned for 2021. This will reduce the variable manufacturing overhead by $5 per unit. It will increase the fixed administrative costs by $10,000 per year. Calculate the units that would have to be sold in the financial year ending 30 June 2021 to achieve the same profit as in the previous financial year ending 30 June 2020.

f) Would you recommend Eye and View Ltd going ahead with the new initiative? Justify your answer.

Reference no: EM133053394

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