E6-5 In 2005, Demuth company had a break-even
point of $320,000 based on selling price of $8 per unit and fixed costs of
$140,000. In 2006, the selling price and the variable cost per unit did not
change, but the break-even point increased to $450,000.
Instructions
(a)
Compare the variable cost per unit and the contribution margin ratio for 2005.
(b)
Compute the increase in fixed costs for 2006
SOLUTION
PREVIEW
(a) Compare the variable cost per unit and the contribution margin
ratio for 2005.
Break-even sales in unit = Break-even sales ÷ Unit
selling price
40,000
units = $320,000 ÷ $8
