Break-even analysis: It is an analysis and study of variables with goal to find a point where a company is neither making profits nor suffering any losses.
The Overall contribution margin ratio and overall break-even point in dollar sales.
Answer to Problem 10E
Solution:
- The Contribution Margin Ratio is 30%
- Break-Even point in dollar sales is $ 80,000
- Verification of Break-Even point with the construction of the contribution format income statement by showing the appropriate levels of sales for the two products is shown below.
Explanation of Solution
A contribution margin ratio is computed by dividing the total contribution margin by total Sales revenue from both products. An overall break-even point is ascertained by dividing the total fixed expense of both products by the overall contribution margin ratio.
1)
3)
Lucido Products contribution format income statement | |||
Claimjumper | Makeover | Total | |
Sales | $30,000 | $70,000 | $100,000 |
Variable expenses | $20,000 | $50,000 | $70,000 |
Contribution margin | $10,000 | $20,000 | $30,000 |
Fixed expenses | $7,200 | $16,800 | $24,000 |
Net operating income | $2,800 | $3,200 | $6,000 |
Given:
Claimjumper | Makeover | Total | |
Sales | $30,000 | $70,000 | $100,000 |
Variable expenses | $20,000 | $50,000 | $70,000 |
Contribution margin | $10,000 | $20,000 | $30,000 |
Fixed expenses | $24,000 | ||
Net operating income | $6,000 |
Hence, the Overall CM ratio 30% and Overall break-even point in dollar sales is $80,000 in case of Lucido Products. A contribution margin ratio is basically the percentage of contribution margin with sales revenue.
Want to see more full solutions like this?
Chapter 6 Solutions
Introduction To Managerial Accounting
- PDF Advisory and Tax Services provides primarily two lines of service: Advisory and Tax. Advisory services represent 0.60 of its revenue and provide a contribution margin ratio of 0.30 Tax services represent 0.40 of its revenue and provide a 0.40 contribution margin ratio. The company’s fixed costs are $4,250,000. Required Compute the weighted average contribution margin ratio. Compute the total revenue required to break even. Calculate the revenue from each type of service that the company must achieve to break even.arrow_forwardQuestion 3: CRS Company’s financial information is given in the table below. Year Sales (OMR) Fixed Costs Variable Costs 2019 405000 90000 225000 2020 450000 120000 240000 Calculate: P/V ratio, E.P. Sales required to earn a profit of OMR 40000. Margin of safety at a profit of OMR 50000 Profit when sales are OMR. 200000.arrow_forwardQuestion 3: Şahar Company's financial information is given in the table below. Year Sales (OMR) | Fixed Costs Variable Costs 2019 405000 90000 225000 2020 450000 120000 240000 Calculate: a) P/V ratio, b) B.E.P. c) Sales required to earn a profit of OMR 40000. d) Margin of safety at a profit of OMR 50000 e) Profit when sales are OMR. 200000.arrow_forward
- West Island distributes a single product. The companys sales and expenses for the month of June are shown. Using the information presented, answer these questions: A. What is the break-even point in units sold and dollar sales? B. What is the total contribution margin at the break-even point? C. If West Island wants to earn a profit of $21,000, how many units would they have to sell? D. Prepare a contribution margin income statement that reflects sales necessary to achieve the target profit.arrow_forwardMultiple-Product Break-Even and Target Profit Vandenberg, Inc., produces and sells two products: a ceiling fan and a table fan. Vandenberg plans to sell 30,000 ceiling fans and 60,000 table fans in the coming year. Product price and cost information includes: Ceiling Fan Table Fan Price $50 $16 Unit variable cost $1 $4 Direct fixed cost $23,000 $42,000 Common fixed selling and administrative expenses total $78,000. Required: 1. What is the sales mix estimated for next year (calculated to the lowest whole number for each product)? Sales mix of ceiling fans to table fans =| 2. Using the sales mix from Requirement 1, form a package of ceiling fans and table fans. How many ceiling fans and table fans are sold at break-even? Round your intermediate calculations and final answers to the nearest whole number. Break-even ceiling fans Break-even table fansarrow_forwardEXERCISE 5-11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio [LO1, LO3, LO5, LO6, LO7] Pringle Company distributes a single product. The company's sales and expenses for a recent month follow: Total Per Unit Sales ...... $600,000 $40 Variable expenses 420,000 28 Contribution margin . Fixed expenses . Net operating income 180,000 $12 150,000 $ 30,000arrow_forward
- Profit Functions A company has a fixed cost of $26,000 and a production cost of $5 for each unit it manufactures. A unit sells for $10. Find the following functions (in dollars). (a) What is the cost function? C(x) = (b) What is the revenue function? R(x) = (c) What is the profit function? P(x) = (d) Compute the profit (loss), in dollars, corresponding to the following production levels. P(5,500) =$ P(8,800) =$ P(12,100) =$arrow_forwardVariable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 20,000 T-shirts at $19 each in the coming year. Product costs include: Direct materials per T-shirt $6.65 $1.33 Direct labor per T-shirt Variable overhead per T-shirt $0.57 Total fixed factory overhead $43,000 Variable selling expense is the redemption of a coupon, which averages $0.95 per T-shirt; fixed selling and administrative expenses total $13,000.arrow_forwardCVP analysis—what-if questions; breakeven Monterey Co. makes and sells a single product. The current selling price is $15 per unit. Variable expenses are $9 per unit, and fixed expenses total $27,000 per month. Required:(Unless otherwise stated, consider each requirement separately.)a. Calculate the break-even point expressed in terms of total sales dollars and sales volume.b. Calculate the margin of safety and the margin of safety ratio. Assume current sales are $75,000.c. Calculate the monthly operating income (or loss) at a sales volume of 5,400 units per month.d. Calculate monthly operating income (or loss) if a $2 per unit reduction in selling price results in a volume increase to 8,400 units per month.e. What questions would have to be answered about the cost–volume–profit analysis simplifying assumptions before adopting the price cut strategy of part d ?f. Calculate the monthly operating income (or loss) that would result from a$1 per unit price increase and a $6,000 per month…arrow_forward
- Solve the quantitative analysis problembelow: Formulas: BEP : Fixed cost / (selling price per unit)-(variable cost per unit) : f / s - v profit : sX - f - vX (selling price per unit)(number of units sold) - [fixed cost + ( variable costs per unit)(number of units sold)] Jacob&Zach Co is a company that offers financial advice for people want to plan their retirement ahead of time. This company offers seminars and trainings on important topics related to retirement planning. For every seminar, the company rents a conference hall for P5,000.00. The company also spends a total of P7,500.00 to cover the cost of advertising and other expenses related to the conduct of the seminar. In every seminar, the company gives token to all attendees and each token costs P85.00. Lastly, the companycharges P350.00 per person who wants to attend seminar. Questions:1.) How many people should attend the seminar to break-even? 2.) Given this BEP number, how much is the a. revenue?b.…arrow_forwardAPPLY THE CONCEPTS: Target income (sales revenue) Another useful method for figuring out the type of performance your company will need to reach a target income is by using sales revenue. Rather than using the number of units, this method uses total sales revenue. In companies for which the total set of goods produced and sold is more varied, this would be the preferred method, as opposed to a business in which only one product is sold. Assume a company has pricing and cost information as follows: Price and Cost Information Amount Selling Price per Unit $30 Variable Cost per Unit $15 Total Fixed Cost $15,000 For the upcoming period, the company wishes to generate operating income of $40,000. Given the cost and pricing structure for the company's product, how much sales revenue must it generate to attain its target income? Step 1: Calculate the contribution margin ratio: The contribution margin ratio is the contribution margin in proportion to the selling price on a per-unit basis.…arrow_forwardSolve the following independent cases and label your supporting computations properly. A) The company's projected profit for the coming year is as follows: Total P 200,000' 120,000 80,000 64,000 16,000 Per Unit P 20 Sales Less: Variable Costs 12 P 8 Contribution Margin P Less: Fixed Costs Net Income 1. Compute the additional profit that the company would earn if sales were P25,000 more than expected. B) KTA sells a special type of health food at a price of P16 per pound. Last year, it purchases this food from its supplier at a cost of P12 per pound. The supplier informed KTA that its cost increases and that this product will now be priced at P14 a pound. Over the years, KTA established a steady market and intends to pass the cost increase along to its customers and also add a P1 per unit to the price for additional profit. Fixed cost for the year are not expected to change and will remain at P34,000. Income tax rate is 32%. The net income after tax last year was P24,000. 2. If KTA can…arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College