Sporto Enterprises is considering the manufacture of a new type of golf ball. Each golf ball would sell for $3.75 and would require $1.75 in variable cost. In addition annual fixed costs associated with the project would total $64,000. Calculate (a) the breakeven point in units, (b) the breakeven point in dollars, (c) the operating income or loss at a sales volume of $112,500 and (d) the number of golfballs that must be sold to earn a profit of $80,000.

Sales 3.75x
VC 1.75X
CM 2X
FC 64,000
NI 0

Therefore, 2X – 64,000 = 0
X = 32,000

A) Therefore, break even units are 32,000 units
B) break even in terms of dollars is 32,000 x 3.75 = $120,000
C) What is NI or NL at sales = $112,500?

Sales 3.75x 112,500 = 30,000 units sold
VC 1.75X = 30,000 x 1.75 = 52,500
CM 2X = 60,000
FC 64,000
NI -4,000

Therefore, a loss of $4,000

D) total units to be sold to earn a profit of $80,000?

Sales ------3.75x
VC --------1.75X
CM =80,000+64,000 = $144,000 2X
FC 64,000
NI 80,000

$144,000 = 2X
X = 72,000 units.

Therefore, 72,000 units must be sold to earn an $80,000 profit

Quote:

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Recap of answers:
A) 32,000 units
B) $120,000
C) $ –4,000
D) 72,000 units

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