Problem G a. Assume that fixed costs of Celtics Company are $180,000 per year, variable cost is $12 per unit, and selling price is $30 per unit. Determine the break-even point in sales units. Celtics Company Step 1: To compute the BE in Units we first have to compute the Contribution Margin (CM) per Unit Contribution margin per unit sales price / unit variable cost / unit per unit Breakeven in Units units Fixed Costs CM per unit b. The sales of Niners Corporation last year amounted to $20,000,000, its variable costs were $6,000,000, and its fixed costs were $4,000,000. At what level of sales dollars would the Niners Corporation break even? Niners Corporation Step 1: To compute the BE we first have to compute the Contribution Margin (CM) Contribution margin- sales price variable cost Step 2: To compute the BE in Sales Dollars we first have to compute the Contribution Margin (CM) Ratio CM ratio CM or (Sales - Variable Costs) Sales Breakeven in Sales Dollars = Fixed Costs CM ratio (Round to nearest cent - 2 decimal places) c. Answer each of the following questions labeled 1-4 based on the Niners Corporation from part b. 1. What would have been the net income of the Niners Corporation, if sales volume had been 10% higher but selling prices had remained unchanged? Use the contribution margin income statement format. 2. What would have been the net income of the Niners Corporation, if variable costs had been 10% lower? Use the contribution margin income statement format. 3. What would have been the net income of the Niners Corporation, if fixed costs had been 10% lower? Use the contribution margin income statement format. 4. Determine the break-even point in sales dollars for the Niners Corporation on the basis of the data given in (2) and then in (3). c. Niners Corporation Scenarios 1. Sales VOLUME (not selling price) 10% higher Niners Corporation Contribution Margin Income Statement The first one done for you. Sales 22,000,000 10% increase in Sales Variable Cost 6,600,000 10% increase in variable since sales UNITS increased, not sales price Contribution Margin $ 15,400,000 Sales - Variable Cost Fixed Costs 4,000,000 Given in problem Income before taxes 11,400,000 CM - Fixed Costs 2. Variable Costs 10% lower Niners Corporation Contribution Margin Income Statement Sales Variable Cost Contribution Margin Fixed Costs Income before taxes Original amount given in problem 10% decrease in variable costs Sales - Variable Cost Given in problem CM - Fixed Costs 3. Fixed Costs 10% lower Niners Corporation Contribution Margin Income Statement Sales Variable Cost Contribution Margin Fixed Costs Income before taxes Original amount given in problem Original amount given in problem Sales - Variable Cost 10% decrease in fixed costs CM - Fixed Costs 4. Breakeven point in sales dollars for Options 2 and 3 OPTION 2 Step 1: Compute the BE in Sales Dollars for Option 2 above. (Hint: the contribution margin was already calculated in the Income Statement above.) CM ratio = CM Sales Breakeven in Sales Dollars = Fixed Costs CM ratio (Round to nearest cent-2 decimal places) Formula Bar OPTION 3 Step 1: Compute the BE in Sales Dollars for Option 3 above. (Hint: the contribution margin was already calculated in the Income Statement above.) CM ratio CM Sales Breakeven in Sales Dollars = (Round to nearest cent - 2 decimal places) Fixed Costs CM ratio 5. Option Analysis: Should Niners Company keep things the same as in (b) or pursue pricing options 1, 2 or 3? Why