Overbrook Defense Ltd. is a mid-sized defense contractor specializing in the production of ruggedized tactical communication systems for government and military clients. With rising overhead and increased production activity, management wants to perform a full profitability analysis and determine the break-even point to guide strategic planning for the upcoming fiscal year.
Correct Answers
net Income
$9,801,800.00
break Even Sales
$1,604,806.32
break Even Units
1,929
contribution Margin Per Unit
506
Step-by-Step Solution
MIXED PROBLEM — Contribution Margin + Break-Even CONTRIBUTION MARGIN INCOME STATEMENT: Sales (21,300 units × $832.00) $17,721,600.00 Less: Variable Costs (21,300 × $326.00) $6,943,800.00 ───────────────────────────────────────────────────────── Contribution Margin $10,777,800.00 Less: Fixed Costs $976,000.00 ───────────────────────────────────────────────────────── Net Income $9,801,800.00 Per Unit: CM per Unit = $832.00 − $326.00 = $506.00 CM Ratio = $506.00 ÷ $832.00 = 60.82% BREAK-EVEN ANALYSIS: Break-Even Units = Fixed Costs ÷ CM per Unit Break-Even Units = $976,000.00 ÷ $506.00 = 1928.8538 → 1929 units (rounded up) Break-Even Sales = Fixed Costs ÷ CM Ratio Break-Even Sales = $976,000.00 ÷ 60.8173% = $1,604,806.32