Answer
The concepts tested in this questions are highly likely to be examined in the papers or assessments. Following are the key points need to remember in order to successfully handle the problem.
(1) "Taxes" are not involved while calculating break-even point. Unless you are dealing with net income or target net income, please make sure to ignore taxes as long as it is related with break-even point or contribution margin.
(2) This is a frequently cited problem and may also confuse you in the exam. Remember that CVP analysis consider all Fixed Costs as period costs. Therefore, you must take all fixed costs whether related to manufacturing, admin or sales etc to calculate break-even point. Sometimes exam question will ask you to calculate "Operating break-even". In that case you may need to include only manufacturing fixed costs and ignore others (if stated). Unless a hint is provided like this, always make sure to include all fixed costs in the formula.
Work Step by Step
Note-1: Fixed Costs
Manufacturing fixed costs 1,200,000
fixed marketing costs 300,000
total fixed costs 1,500,000
Note-2: Contribution Margin Per Unit
Sales Price 30
Variable Costs - direct 21
Variable Costs - sale commissions (30 * 5%) = 1.5
Contribution margin per unit = (30 - 21 - 1.5) = 7.50
