Overbrook Defense Ltd. is a mid-sized defense contractor specializing in the production of ruggedized tactical body armor panels sold to government and military clients at $216 per unit. Management wants to assess overall profitability at current production levels and determine the minimum number of units that must be sold to cover all costs.
Correct Answers
net Income
$5,917,800.00
break Even Sales
$694,956.52
break Even Units
3,218
contribution Margin Per Unit
138
Step-by-Step Solution
MIXED PROBLEM — Contribution Margin + Break-Even CONTRIBUTION MARGIN INCOME STATEMENT: Sales (46,100 units × $216.00) $9,957,600.00 Less: Variable Costs (46,100 × $78.00) $3,595,800.00 ───────────────────────────────────────────────────────── Contribution Margin $6,361,800.00 Less: Fixed Costs $444,000.00 ───────────────────────────────────────────────────────── Net Income $5,917,800.00 Per Unit: CM per Unit = $216.00 − $78.00 = $138.00 CM Ratio = $138.00 ÷ $216.00 = 63.89% BREAK-EVEN ANALYSIS: Break-Even Units = Fixed Costs ÷ CM per Unit Break-Even Units = $444,000.00 ÷ $138.00 = 3217.3913 → 3218 units (rounded up) Break-Even Sales = Fixed Costs ÷ CM Ratio Break-Even Sales = $444,000.00 ÷ 63.8889% = $694,956.52