Question

Freeland Company sells Popits for $20. The following is the projected Income Statement for 2018. Variable costs are the cost of the Popits, $10 each, plus a 10% sales commission paid to the worker. Sales $300,000 Cost of Popits Sold 150,000 Gross Margin 150,000 Operating Expenses Salaries and Commissions 60,000 Rent 24,000 Other Fixed Expenses 10,000 Total Operating Expenses 94,000 Net Income $ 56,000 For Freeland, the number of Popits she needs to sell to break even are A. 6,620 B. need more information to calculate this C. 9,074 D. 8,000 E. 11,750

Answer 1

D. 8,000

Step-by-step explanation:

The computation of break even is shown below:-

Variable cost per unit = Cost of Popits per unit + Sales commission per unit

= $10 + (10% × $20)

= $10 + $2

= $12

Contribution margin per unit = Sales per unit - Variable cost per unit

= $20 - $12

= $8

Total fixed Cost = Salaries + Rent + Other fixed cost

= ($60,000 - $30,0000) + $24,000 + $10,000

= $30,000 + $24,000 + $10,000

= $64,000

Now,

Break-even units = Fixed cost ÷ Contribution per unit

= $64,000 ÷ 8

= 8,000

Therefore for computing the break-even units we simply applied the above formula.