Break-Even in Sales Revenue, Changes in VariablesCarmichael Corporation is in the process of preparing next year's budget. The pro forma income statement for the current year is as follows:Sales$1,800,000Cost of sales:Direct materials$250,000Direct labor180,000Variable overhead106,000Fixed overhead100,000636,000$1,164,000Gross profitSelling and administrative expenses:Variable$400,000750,000Fixed350,000$414,000Operating incomeRequired:1. What is the break-even sales revenue for Carmichael Corporation for the current year? In your calculations, carry the contribution margin ratio to two decimal places.2. For the coming year, the management of Carmichael Corporation anticipates an 8 percent increase in variable costs and a $60,000 increase in fixed expenses. What is the break-even point in dollars for next year? In your computation, round thecontribution margin ratio to four decimal places. Round your final answer to the nearest dollar. (CMA adapted)

Question
Asked Nov 8, 2019
Break-Even in Sales Revenue, Changes in Variables
Carmichael Corporation is in the process of preparing next year's budget. The pro forma income statement for the current year is as follows:
Sales
$1,800,000
Cost of sales:
Direct materials
$250,000
Direct labor
180,000
Variable overhead
106,000
Fixed overhead
100,000
636,000
$1,164,000
Gross profit
Selling and administrative expenses:
Variable
$400,000
750,000
Fixed
350,000
$414,000
Operating income
Required:
1. What is the break-even sales revenue for Carmichael Corporation for the current year? In your calculations, carry the contribution margin ratio to two decimal places.
2. For the coming year, the management of Carmichael Corporation anticipates an 8 percent increase in variable costs and a $60,000 increase in fixed expenses. What is the break-even point in dollars for next year? In your computation, round the
contribution margin ratio to four decimal places. Round your final answer to the nearest dollar. (CMA adapted)
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Break-Even in Sales Revenue, Changes in Variables Carmichael Corporation is in the process of preparing next year's budget. The pro forma income statement for the current year is as follows: Sales $1,800,000 Cost of sales: Direct materials $250,000 Direct labor 180,000 Variable overhead 106,000 Fixed overhead 100,000 636,000 $1,164,000 Gross profit Selling and administrative expenses: Variable $400,000 750,000 Fixed 350,000 $414,000 Operating income Required: 1. What is the break-even sales revenue for Carmichael Corporation for the current year? In your calculations, carry the contribution margin ratio to two decimal places. 2. For the coming year, the management of Carmichael Corporation anticipates an 8 percent increase in variable costs and a $60,000 increase in fixed expenses. What is the break-even point in dollars for next year? In your computation, round the contribution margin ratio to four decimal places. Round your final answer to the nearest dollar. (CMA adapted)

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Expert Answer

Step 1

Break-even Sales:

Break even sales is the dollar amount of revenue at which a business earns a profit of zero i.e. No Profit No Loss. This sale amount exactly covers the underlying fixed costs of a business, plus all the variable costs associated with the sales

Break-even Sale Revenue Fixed Cost - Contribution Margin Ratio
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Break-even Sale Revenue Fixed Cost - Contribution Margin Ratio

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Step 2

Computation of Income under Variable Costing method

Carmichael Corporation
Income Statement
Ratio
Particulars
Amount
Amount
Sales
1800000
100%
Less: Variable Cost
Direct Material
250000
Direct Labor
180000
Variable Overhead
106000
Selling and Admin Exp
400000
936000
52.00%
Contribution
864000
48.00%
Less: Fixed Cost
Fixed Overhead
100000
Selling and Admin Exp
Operating Income
350000
450000
25.00%
414000
23.00%
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Carmichael Corporation Income Statement Ratio Particulars Amount Amount Sales 1800000 100% Less: Variable Cost Direct Material 250000 Direct Labor 180000 Variable Overhead 106000 Selling and Admin Exp 400000 936000 52.00% Contribution 864000 48.00% Less: Fixed Cost Fixed Overhead 100000 Selling and Admin Exp Operating Income 350000 450000 25.00% 414000 23.00%

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Step 3

Computation of Breakeve...

Fixed Cost $450,000
Contribution Margin Ratio 48%
Breakeven Sales Fixed Cost - Contribution Margin Ratio
Break-even Sales 450000
48%
=$937,500
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Fixed Cost $450,000 Contribution Margin Ratio 48% Breakeven Sales Fixed Cost - Contribution Margin Ratio Break-even Sales 450000 48% =$937,500

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