N 75000 0 37 22 5000 units sales in 37 x 5000 units

N = ($75,000 + $0) ÷ ($37 − $22) = 5,000 units
Sales in $ = $37 x 5,000 units = $185,000
b.
N = ($120,000 + $0) ÷ ($37 − $22) = 8,000 units
Sales in $ = $37 x 8,000 units = $296,000

c.
A fixed cost structure increases risk and the number of units required
to break-even.
Exercise 3-5A
a. Price = Target sales price per unit; N = number of units
Sales − Variable cost − Fixed cost = Profit
(Price x 10,000) − ($2.50 x 10,000) − $36,000 = $20,000
Price x 10,000 = $25,000 + $36,000 + $20,000
Price = ($81,000 ÷ 10,000) = $8.10
b. Mote could reengineer its product so that it can be produced at a
lower targeted cost. This would enable Mote to offer a competitive
price while maintaining its profitability.
Exercise 3-6A
Sales revenue ($16 x 200,000) $3,200,000
 Gross margin
800,000
= Cost of goods sold 2,400,000
 Total units
200,000
= Cost of product per unit $12
 Fixed cost per unit
7
= Variable cost per unit $ 5
Variable cost = $5 x 200,000 = $1,000,000
Total contribution margin = $3,200,000  $1,000,000 = $2,200,000

Exercise 3-7A
a. Sales price per unit $175
Variable cost per unit (75)
Contribution margin per unit $100
b. Break-even in units = Fixed cost ÷ Contribution margin per unit
Break-even in units = $600,000 ÷ $100
Break-even in units = 6,000
c. Required sales in units
= (Fixed cost + Profit) ÷ Contribution margin/Unit
Required sales in units = ($600,000 + $200,000) ÷ $100
Required sales in units = 8,000
Exercise 3-8A
Required sales = (Fixed cost + Desired profit) ÷ Contribution margin
Required sales = ($375,000 + $75,000) ÷ ($28 – $13)
Required sales = 30,000 units at old price
Required sales = (Fixed cost + Desired profit) ÷ Contribution margin
Required sales = ($375,000 + $75,000) ÷ ($25.00 – $13.00)
Required sales = 37,500 units at new price
Additional units required: 37,500 – 30,000 = 7,500 units
Exercise 3-9A
Required sales
= (Fixed cost + Desired profit) ÷ Contribution margin per unit
Required sales = ($375,000 + $75,000 + $36,000) ÷ ($25.00 –
$13.00)
Required sales = 40,500 units at the new price

Exercise 3-10A
a. = 5
b. = 4
c. = 6
d. = 2
e. = 3
f. = 1
Exercise 3-11A
a. Price = Sales price per unit; N = Number of units
(Price x N) – (Variable cost per unit x N) – Fixed cost =
Profit
Price (6,400 units) – $18 (6,400 units) – $161,400 = $69,000
Price (6,400 units) = $345,600
Price = $54 per unit
b. Contribution margin income statement using new equipment:
Sales ($54 x 6,400 units) $345,600
Variable costs ($16 x 6,400 units) (102,400)
Contribution margin $243,200
Fixed cost ($161,400 + $9,000) (170,400)
Net Income $ 72,800
Naylor Company should invest in the new equipment because
profitability would increase by $3,800 ($72,800 – $69,000).

Exercise 3-12A
Begin by determining the break-even point and budgeted sales in
dollars:
Break-even = Fixed cost ÷ Contribution margin per unit
Break-even = $176,000 ÷ ($38 – $16)
Break-even = 8,000 units
Break-even sales = $38 x 8,000 units = $304,000
Budgeted sales = $38 x 21,000 = $798,000
Margin of safety computations:
Budgeted sales – Break-even sales
Margin of safety = ––––––––––––––––––––––––––––––––––––––
Budgeted sales
$798,000 – $304,000
Margin of safety = –––––––––––––––––––––––––––
$798,000
Margin of safety = 61.90%
Exercise 3-13A
a. N = Number of units to break-even
Sales − Variable cost − Fixed cost = Profit
(Sales price x N) − (Variable cost per unit x N) = Fixed cost +
Profit
(Contribution margin per unit x N) = Fixed cost + Profit
N = (Fixed cost + Profit) ÷ Contribution margin per unit
N = ($196,000 + $0) ÷ ($36 − $22) = 14,000 units
Break-even point in dollars = $36 x 14,000 = $504,000

b.