Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 27

Break-Even Units: Units for Target Profit
Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 16,000 units at a price of $320 each. Product costs include:

Variable selling expense is a commission of 5 percent of price; fixed selling and administrative expenses total $116,400.
Required:
1. Calculate the sales commission per unit sold. Calculate the contribution margin per unit.
2. How many units must Jay-Zee Company sell to break even? Prepare an income statement for the calculated number of units.
3. Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $333,408.
4. What if the Jay-Zee Company wanted to achieve a target operating income of $322,000? 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.