Breakeven Analysis and Planning Future Sales P9. PeerlessCompanyhasamaximum

Breakeven Analysis and Planning Future Sales

P9. PeerlessCompanyhasamaximumcapacityof500000unitsperyear.Variable manufacturing costs are $25 per unit. Fixed
overhead is $900000 per year. Vari- able selling and administrative costs are $5 per unit and fixed selling and adminis- trative costs are $300000 per
year. The current sales price is $36 per unit.

Required

What is the breakeven point in (a) sales units and (b) sales dollars?

How many units must Peerless Company sell to earn a profit of $600000

per year?

Astrikeatoneofthecompany%u2019smajorsuppliershascausedashortageofmate-

rials so the current year%u2019s production and sales are limited to 400000 units. To partially offset the effect of the reduced
sales on profit management is plan- ning to reduce fixed costs to $1000000. Variable cost per unit is the same as last year. The company has
already sold 30000 units at the regular selling price of $36 per unit.

a. What amount of fixed costs was covered by the total contribution mar- gin of the first 30000 units sold?

b. What contribution margin per unit will be needed on the remaining 370000 units to cover the remaining fixed costs and to earn
a profit of $300000 this year?