1 a.
Explain how breakeven point in units is calculated by using the contribution margin approach.
1 a.
Explanation of Solution
Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations.
Contribution Margin: The process or theory which is used to judge the benefit given by each unit of the goods produced is called as contribution margin. The contribution margin is the difference between the selling price and the cost of the product.
By using the contribution margin approach, the breakeven point in units is calculated as below:
1 b.
Explain how breakeven point in units is calculated by using the equation approach.
1 b.
Explanation of Solution
Equation approach: Equation approach is an alternative way to find out the breakeven point. It is based on the profit equation.
By using the equation approach, the breakeven point in units (sales volume in units) is calculated as below:
3.
Explain how breakeven point in units is determined by using the graphical approach.
3.
Explanation of Solution
Sales revenue and total expenses are graphed according to the graphical approach. The point of intersection of total revenue and total expenses is considered as the break -even point.
Want to see more full solutions like this?
Chapter 7 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
- use the following information given to compute for solvency ratioarrow_forwardDefine the following terms, and explain the relationship between them: (a) cost estimation, (b) cost behavior, and (c) cost prediction.arrow_forwardDefine each of the following terms:g. Lessee’s analysis; lessor’s analysisarrow_forward
- Explain the implementation problems in cost estimation.arrow_forwardexplain the difference between margin and markuparrow_forwardWhich of the following methods of cost estimation relies on only two data points? A. the high-low method B. account analysis C. least-squares regression D. SWOT analysis.arrow_forward
- For each independent situation below, calculate the missing values.arrow_forwardName four approaches to estimating a cost function.arrow_forwardWhich of the following methods of cost estimation relies on only two data points?A. the high-low methodB. account analysisC. least-squares regressionD. SWOT analysis.arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College