Sheet1 Break Even Analysis Problem for Lassiter Incorporated for FY 20X5 Problem:
Lassiter Inc. is a manufacturing firm that sells widgets. In 20X5 the variable cost of 1 widget was $20 and they produced 20,000 widgets. The Fixed Cost was $95,000 Units. They sold 8,000 units in 20X5 at a sales price of $100. Lassiter Inc. had a net income of $600,000 in 20X4 and wish to increase by 10% annually. Compute both the BE point in both units and dollars for 20X5. Also, if they are to hit their target income, how many units would they need to sell?
Solution: BE$ = (Sales -Variable Cost) – Fixed Cost BE$ = [($100 * 8,0000units) - ($20 * 10,000)] - $95,000 BE$ = (800,000) – (200,000) – 95,000 BE$ = (800,000) – (200,000) – 95,000 BE$ = 600,000 – 95,000 BE$ = $505,000 Answer (1) : Lassiter Inc. must earn $505,000 to break even for 20X5 BE in Units = $505,000/ Sales Price BE in Units = $505,000/ $100 BE in Units = 5,050 Answer (2) : Lassiter Inc. must sell 5,050 widgets in order to break even
Target Income = Prior Year Income * (1 + Growth Rate) Target Income = $600,000 * (1 + 10%) Target Income = $660,000 BE$ = (Sales -Variable Cost) – Fixed Cost $660,000 =[ ($100 * Units Sold) - ($20 * 10,000 Units)] - $95,000 $565,000 = ($100 * Units Sold) - $200,000 $365,000 = ($100 * Units Sold) Units Sold = 3,650 Answer (3) : Lassiter Inc. must sell a total of 3,650 widgets in order to hit their Target Income of $660,000 (growth of 10% from the previous year income of $600,000)
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