Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 1

BREAK-EVEN UNITS, UNITS FOR TARGET PROFIT
Jerez Company makes an in-car navigation system. Next year, Jerez plans to sell 6,000 units at a price of $300 each. Product costs include:

Variable selling expense is a commission of 6 percent of price; fixed selling and administrative expense totals $109,000.
Required:
1. Calculate the sales commission per unit sold. Calculate the contribution margin per unit.
2. How many units must Jerez Company sell to break even? Prepare an income statement for the calculated number of units.
3. Calculate the number of units Jerez Company must sell to achieve target operating income (profit) of $333,500.
4. What if the Jerez Company wanted to achieve a target operating income of $314,650? Would the number of units needed increase or decrease compared to your answer in Requirement 3? Compute the number of units needed for the new target operating income.