Case Assignment Example | Topics and Well Written Essays - 750 words - 2

Case - Assignment Example The variable costs increase as the number of units increase. Similarly, the variable costs decrease as the number of units is reduced. However, the fixed costs remain the same at all production quantity levels (increase, decrease or steady sales and production outputs). Since the unit selling price for each boat is $20,000 and the total variable cost of each boat is $8,000, then the contribution margin is $12,000 per boat. To arrive at the breakeven sales, the $24,000 fixed cost amount is divided by the $12,000 contribution margin per boat. The consequent sales (breakeven) is two units. This is arrived at by dividing the $24,000 fixed costs by the contribution margin, $12,000 per boat. To arrive at the breakeven sales amount, the breakeven sales unit, 2, is multiplied by the unit selling price per boat, $20,000. Consequently, the breakeven sales amount is $40,000. The second situation shows the selling price is raised to $25,000 per boat. Consequently, the breakeven sales amount is the sale that results to the same zero profits (Hilton, 2011). Since the fixed cost is $24,000. There must be enough sales cash inflow to defray the $24,000 fixed cost amount. Consequently, the contribution margin must be equal to the $24,000 fixed costs amount to arrive at the same zero profit. Likewise, the data shows that each boat generates variable costs amounting remains at $8,000. Since the unit selling price for each boat is $25,000 and the total variable cost of each boat is $8,000, then the contribution margin is raised to $17,000 per boat. To arrive at the breakeven sales, the $24,000 fixed cost amount is divided by the $12,000 contribution margin per boat. The sales (breakeven) is 1.41units. This is arrived at by dividing the $24,000 fixed costs by the higher contribution margin, $17,000 per boat. To arrive at the breakeven sales amount, the breakeven sales unit, 1.41, is multiplied by the higher unit selling price per boat,