[sagnik2422]

Trenton and Company makes a single product requiring $50 of direct materials. Manufacturing overhead is applied using a predetermined overhead of 150% of direct labor cost. One third of manufacturing overhead is fixed. There is no under or over applied overhead and the company has no beginning or ending inventory. The company reports the following results for August :
Number of Units Sold : 8,000
Selling Price Per Unit : $300
Manufacturing Cost Per Unit : $200
Variable Selling and Admin. Expenses per unit : $45
Total Fixed Selling and Admin Expenses : $290,000
Question : How many units can sales go down before company incurs a loss?
A) 1765 B) 5,100 C) 2,700 D) 6,235 E ) None

My work : Total revenue: $300 * (8,000) = $2,400,000
Price per unit:
Direct materials = 8000/50 = 0.00625
Admin - fixed is 290,000/8000 (units) = 36.25

0.00625 (direct materials)
+ 200.00 (manufacturing)
+ 45.00 (admin - variable)
+ 36.25 (admin - fixed)
= $281.26

Total expenses:
281.26 * 8000 = 2,250,050 <-- this is your break-even point

$2,250,050 / $300 (selling price) = 7500 units <-- this is how many units need to be sold to cover expenses

The answer was 1765 units can someone say where I went wrong

[paraclete]

Comment

You have mixed the concepts of breakeven analysis and absorption costing. Breakeven analysis relies on direct costing
Contribution margin is an important concept so is fixed cost

manufacturing cost is $50 fixed and $100 variable
contribution margin is 300-(200-50+45) = 105

290,000/105 = 2762 * 300 = 828,571 this is the breakeven point, the breakeven point is the $sales or number of units that must be sold to cover expenses.




over to you

[sagnik2422]

Trenton and Company makes a single product requiring $50 of direct materials. Manufacturing overhead is applied using a predetermined overhead of 150% of direct labor cost. One third of manufacturing overhead is fixed. There is no under or over applied overhead and the company has no beginning or ending inventory. The company reports the following results for August :
Number of Units Sold : 8,000
Selling Price Per Unit : $300
Manufacturing Cost Per Unit : $200
Variable Selling and Admin. Expenses per unit : $45
Total Fixed Selling and Admin Expenses : $290,000
Question : How many units can sales go down before company incurs a loss?
A) 1765 B) 5,100 C) 2,700 D) 6,235 E ) None
HELP I RECEIVED : You have mixed the concepts of breakeven analysis and absorption costing. Breakeven analysis relies on direct costing

Contribution margin is an important concept so is fixed cost

manufacturing cost is $50 fixed and $100 variable
contribution margin is 300-(200-50+45) = 105

290,000/105 = 2762 * 300 = 828,571 this is the breakeven point, the breakeven point is the $sales or number of units that must be sold to cover expenses.

MY FOLLOW UP THINKING : I tried dividing 828,571 by 300 and got 2761 but this was not the right answer of 1765 please help with steps on how to get this

[paraclete]

I'm not doing your assignment for you, I have shown you that your thinking about this analysis is flawed and perhaps that stems from your instruction and I have provided you with the important pieces of the puzzle.

Think about the equations need to solve this problem. Do you know the quantum of fixed costs, if not calculate it.

Variable costs have two components and so do fixed costs apparently. Fixed costs are $50 a unit at 8000 units volume. This question is worded so as to mask this "fact"