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md-futcpa
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Joined: 03 May 2009
Location: United States
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Posts: 718

Posted: 29 Sep 2009 at 14:00 \| IP Logged

How come they divide by 3 and not 6? Thought BEP = FC/CM ?

They multiply it by CM in the original...I am not understanding this solution.

A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25
per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year,
the company expects the price per cup to be $9.00; variable manufacturing costs to increase 33.3%; and
fixed costs to increase 10%. How many cups (rounded) does the company need to sell this year to break
even?
a. 17,111
b. 17,500
c. 19,250
d. 25,667
Solution:
Choice "c" is correct. The ceramics manufacturer will need to sell 19,250 cups under new cost
assumptions to break even. The fact pattern provides current breakeven information and requires
computation of a revised breakeven subject to new assumptions.
Current Costs Assumptions Revised Costs
Selling price (given) $ 7.50 $ 9.00
Variable costs (given) 2.25 x 1.333 = 3.00
Contribution margin (computed) $ 5.25 $ 6.00
Breakeven in units (given) 20,000
Fixed costs (computed) $105,000 x 1.10 = $ 115,000
Current fixed costs are computed using the breakeven formula in units as follows:
Fixed costs ÷ Contribution margin per unit = Breakeven in units
Fixed costs ÷ $5.25 = 20,000
Fixed costs = $5.25 x 20,000 = $105,000
Revised breakeven point in units is computed using the same formula with revised data:
Fixed costs ÷ Contribution margin per unit = Breakeven in units
$115,000 ÷ $3.00 = Breakeven in units
19,250 = Breakeven in units

__________________
09'
REG 5/09 Passed
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BEC 71 R 10/1/09 Waiting
FAR 11/25/09 Trying
Picture you beating the odds - Maino

kj_nyc
Major Contributor

Joined: 05 Jun 2009
Location: United States
Online Status: Offline
Posts: 1145

Posted: 29 Sep 2009 at 14:21 \| IP Logged

The Becker solution you posted has all kinds of typos/arithmetic errors. This year's fixed costs are $115,500, not $115,000 (do the $105,000 x 1.10 and check). And do out the $115,000 ÷ $3.00. It is not 19,250. I also get 19,250, but I got it by 115,500/6, see my solution below:

Last year's unit contribution margin: 7.50-2.25 = 5.25
Last year's break even contribution margin = fixed costs = 5.25*20k = 105,000

This year's unit contribution margin: 9-(1.333*2.25) = 9-3 = 6
This year's fixed costs = 105,000*1.1 = 115,500
This year's break even units = 115,500/6 = 19,250

md-futcpa
Major Contributor

Joined: 03 May 2009
Location: United States
Online Status: Offline
Posts: 718

Posted: 29 Sep 2009 at 14:25 \| IP Logged

I copied it exactly from they're solutions online and I Didn't understand it.

Glad I switched to Yeager.

__________________
09'
REG 5/09 Passed
AUD 8/09 Passed
BEC 71 R 10/1/09 Waiting
FAR 11/25/09 Trying
Picture you beating the odds - Maino

kj_nyc
Major Contributor

Joined: 05 Jun 2009
Location: United States
Online Status: Offline
Posts: 1145

Posted: 29 Sep 2009 at 14:34 \| IP Logged

I have found about the same number of mistakes in every review material I use. But given that Becker costs an arm and a leg, I would be more upset about Becker mistakes.

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