The Allen Company had the following income statement for the month of July: $\begin{array}{c}
\text { Allen Company}\
\text { Income Statement}\
\text { For the Month of July}\\
\begin{array}{lrr}
\text { Sales }(\$ 60 \times 10,000) & & \$ 600,000 \
\text { Cost of goods sold: } & & \
\text { Direct materials }(\$ 12 \times 10,000) & \$ 120,000 \
\text { Direct labour }(\$ 9 \times 10,000)& 90,000 & \
\text { Variable factory overhead }(\$ 7.50 \times 10,000)& 75,000 \
\text { Fixed factory overhead } & \underline{120,000} & \underline{405,000} \
\text { Gross profit } & & \$ 195,000 \
\text { Selling and administrative expenses: } \
\text { Variable }(\$ 1.50 \times 10,000) & \$ 15,000 & \
\text { Fixed }& \underline{90,000} & \underline{105,000} \
\text { Operating income }& & \$ 90,000
\end{array}\end{array}$
- What is Allen Company's break-even sales volume?

Question

The Allen Company had the following income statement for the month of July: $\begin{array}{c}
\text { Allen Company}\
\text {  Income Statement}\
\text {  For the Month of July}\\
\begin{array}{lrr}
\text { Sales }(\$ 60 \times 10,000) & & \$ 600,000 \
\text { Cost of goods sold: } & & \
\text { Direct materials }(\$ 12 \times 10,000) & \$ 120,000 \
\text { Direct labour }(\$ 9 \times 10,000)& 90,000  & \
\text { Variable factory overhead }(\$ 7.50 \times 10,000)& 75,000 \
\text { Fixed factory overhead } & \underline{120,000} & \underline{405,000}  \
\text { Gross profit } & & \$ 195,000 \
\text { Selling and administrative expenses: } \
\text { Variable }(\$ 1.50 \times 10,000)  & \$ 15,000 & \
\text { Fixed }& \underline{90,000} & \underline{105,000} \
\text { Operating income }& & \$ 90,000
\end{array}\end{array}$
- What is Allen Company's break-even sales volume?

Quizplus · Accepted Answer

To calculate the break-even sales volume, we need to determine the fixed costs and the contribution margin per unit. Fixed costs are the sum of fixed factory overhead ($120,000) and fixed selling and administrative expenses ($90,000), totaling $210,000. The contribution margin per unit is the sales price per unit minus variable costs per unit. The sales price per unit is $60, and the variable costs per unit include direct materials ($12), direct labor ($9), variable factory overhead ($7.50), and variable selling and administrative expenses ($1.50), totaling $30. Thus, the contribution margin per unit is $60 - $30 = $30. The break-even volume in units is the fixed costs divided by the contribution margin per unit, which is $210,000 / $30 = 7,000 units.

The Allen Company Had the Following Income Statement for the Month