For the coming year, Cleves Company anticipates a unit selling price of $100, a unit variable cost of $60, and fixed costs of $480,000. Instructions1. Compute the anticipated break even sales (units)2. Compute the sales (units) required to realize a target profit of $240,0003. Construct a cost volume profit chart, assuming maximum sales of 20,000 units within the relevant range4. Determine the probable income (loss) from operations if sales total 16,000 units

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Asked Sep 22, 2019
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For the coming year, Cleves Company anticipates a unit selling price of $100, a unit variable cost of $60, and fixed costs of $480,000. Instructions

1. Compute the anticipated break even sales (units)

2. Compute the sales (units) required to realize a target profit of $240,000

3. Construct a cost volume profit chart, assuming maximum sales of 20,000 units within the relevant range

4. Determine the probable income (loss) from operations if sales total 16,000 units

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Expert Answer

Step 1

1. Calculate the anticipated break-even sales in units.

Step 1: Determine the contribution margin per unit.
(Selling price per unit
Contribution margin per unit = [ Variable cost per unit
(S100 per unit -$60 per unit)
= $40 per unit
Step 2: Compute the break-even sales in units.
Break-even point in sales(Units) - Contribution margin per unit
Fixed cost
$480, 000
$40 per unit
=12,000 units
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Step 1: Determine the contribution margin per unit. (Selling price per unit Contribution margin per unit = [ Variable cost per unit (S100 per unit -$60 per unit) = $40 per unit Step 2: Compute the break-even sales in units. Break-even point in sales(Units) - Contribution margin per unit Fixed cost $480, 000 $40 per unit =12,000 units

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Step 2

2. Calculate the sales (Units) that are required to realize a target of $240,000.

Fixed cost Target profit
Sales (Units)Contribution margin per unit
$480,000+$240, 000
$40 per unit
18,000 units
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Fixed cost Target profit Sales (Units)Contribution margin per unit $480,000+$240, 000 $40 per unit 18,000 units

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Step 3

3. Construct a cost volume profit chart by assuming th...

Operating Profit Area
$2.000,000
Break-Even Point
$1.500.000
Sales
Total Costs
$1200,000
$1,000,000
$500,000
Operating Loss
Area
$0
18000 20,000
2,000
4000
6000
8.000
10,000
12,000
14,000
16,000
Units of Sales
Sales and Costs
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Operating Profit Area $2.000,000 Break-Even Point $1.500.000 Sales Total Costs $1200,000 $1,000,000 $500,000 Operating Loss Area $0 18000 20,000 2,000 4000 6000 8.000 10,000 12,000 14,000 16,000 Units of Sales Sales and Costs

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