Kajli Agrawal

Breakable Analysis Issue Breakable analysis Clear Camera Company Is considering Introducing a new video camera. Its selling price Is projected to be $1,000 per unit. Variable manufacturing costs are estimated to be $500 per unit. Variable selling costs are 10% of sales dollars.

The company expects the annual fixed manufacturing costs for the new camera to be $3,500,000. Required (a) Compute Killer’s contribution margin per unit and contribution margin ratio. (b)

Determine the number of units Clear must sell to break even. (c) Clear Is considering a design modification that would reduce the variable cost of the camera by $50 per unit. Explain whether this change will cause Killer’s breakable point to increase or decrease, compared to the initial plans.

Solution (a) Contribution Margin Per unit = Sales Price Per unit – Total Variable Costs Per Unit $1000. 00-$500. 00-$100. 00=$400. 00 contribution Mar-gnu Ratio = contribution Margin Per Unit/Sales Price Per Unit $400.

00/$1000. 00=0. 40 (b) Assume X number of units, Clear must sell to break even

Selling Price for X units = $1000. XX Total variable costs for X units – $600. OX Selling Price = Annual Fixed Manufacturing Costs + Total Variable Costs $1 oho. Ox = X=8750.

O units (c) Variable cost is indirectly proportional to the contribution margin per unit so if the variable cost per unit will decrease, the contribution margin per unit will increase. Breakable Points = Fixed Costs/ Contribution Margin So the Breakable Point will decrease.