Accounting and Finance Foundations

Unit 11

Accounting and Finance Foundations Unit 11: Financial Analysis 851

Financial Analysis

Chapter 24

Student Assignment

24.1.1 Break-Even Point

1. Tom plans to open a store and sell screen-printed shirts for $16.00 each. He estimates fixed expenses to
   be $20,000 and variable expenses to be $6.00 per shirt. How many shirts must Tom sell to break even?


2. If fixed costs are $43,000, the variable cost per unit is $16.40, and each unit sells for $52.00, how many
   units must be sold to break even?


3. Johnny sells chili cheese dogs for $2.19 each. Each hot dog costs $0.42; each bun is $0.07; each serving
   of chili is $0.12; each serving of cheese is $0.04; and total fixed costs are $3,200. How many chili cheese
   dogs must Johnny sell to break even?


4. Joe and John’s hamburger stand sells a burger for $1.89. If the meat patty costs $0.30, a bun is $0.08,
   a pickle costs $0.03, and total fixed costs are $2,345, how many burgers must be sold to break even?
   How many burgers must be sold to have a profit of $500?


5. The Kodiak Manufacturing Company makes tents, backpacks, and other camping gear. Company manag-
   ers are evaluating the sales and profits of some of their products and have asked you to
   calculate the break-even point for three of the products. Information about the products follows.

Product Selling Price Unit Variable Costs Fixed Costs

One-person tent $ 79.00 $ 27.80 $ 8,000.00

Four-person tent 199.00 74.80 18,000.00

Backpack 39.00 7.40 1,200.00

Break-even point:

One-person tent

Four-person tent

Backpack

6. The Kodiak Manufacturing Company managers have asked you to explain the impact of changes in fixed
   costs, variable costs, and selling price on the break-even point.
   a. What happens to the break-even point when fixed costs are increased?

b. What happens to the break-even point when variable costs are increased?

c. What happens to the break-even point when the selling price increases?