3BP Therapeutic Systems sells its pr... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 3BP (page 146)

Therapeutic Systems sells its products for $13 per unit. It has the following costs:
Rent
$145,000
Factory labor
$4.00 per unit
Executives under contract
$186,500
Raw material
$1.20 per unit
Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of $13, compute the break-even point.

Short Answer

Expert verified

Rental expenses and the executives under contract expenses are considered as the fixed cost and the factory labor cost and the raw material expenses are considered as the variable cost.

The break-even point of the company is 42,500 units.

Step by step solution

Bifurcation of different cost as fixed cost and variable cost

Rent	Fixed cost
Factory labor	Variable cost
Executives under contract	Fixed cost
Raw material	Variable cost

Break-even point

$\begin{array}{rcl} Break even point & = & \frac{Fixed cost}{(Revenue per unit - Variable cost per unit)} \\ = & \frac{($ 145, 000 + $ 186, 500)}{($ 13 - ($ 4 + $ 1.20))} \\ = & \frac{$ 331, 500}{$ 7.80} \\ = & 42, 500 units \end{array}$

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Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

Increase in accounts receivable	Decrease in prepaid expenses
Increase in notes payable	Increase in inventory
Depreciation expense	Dividend payment
Increase in investment	Increase in accrued expenses
Decrease in account payable

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Short Answer

Step by step solution

Bifurcation of different cost as fixed cost and variable cost

Break-even point

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Rent	\)145,000
Factory labor	\(4.00 per unit
Executives under contract	\)186,500
Raw material	\(1.20 per unit