Concept explainers
Break-even sales, contribution margin
"Every airline has what is called a break-even load factor. Thai is. the percentage of scats the airline . . . (flies) . . . that it must sell ... to cover its costs. Since revenue and costs vary from one airline to another, so does the break-even factor. . . . Overall, the break-even load factor for the (airline) industry in recent years has been approximately 66 percent."
The airline industry is notorious for boom and bust cycles. Why is airline profitability very sensitive to these cycles? Do you think that during a down cycle the strategy' to consolidate routes and raise ticket prices is reasonable? What would nuke this strategy succeed or fail? Why? Source:
http://www.avjobs.coni/history/airline-economics.asp.
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- Cost-Volume-Profit, Margin of Safety Victoria Company produces a single product. Last years income statement is as follows: Required: 1. Compute the break-even point in units and sales dollars calculated using the break-even units. 2. What was the margin of safety for Victoria last year in sales dollars? 3. Suppose that Victoria is considering an investment in new technology that will increase fixed cost by 250,000 per year but will lower variable costs to 45% of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming that Victoria makes this investment. What is the new break-even point in sales dollars, assuming that the investment is made?arrow_forwardMargin of Safety a. If Canace Company, with a break-even point at $223,200 of sales, has actual sales of $360,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. 1. $fill in the blank 1 2. fill in the blank 2% b. If the margin of safety for Canace Company was 20%, fixed costs were $1,044,800, and variable costs were 80% of sales, what was the amount of actual sales (dollars)?(Hint: Determine the break-even in sales dollars first.)$fill in the blank 3arrow_forwardOverall break even point = Fixed cost / Contribution margin ratio = $16,650,000 / 64.74% = $25,718,257 approx So if this is the overall break-even point, let's assume that sales revenue remains constant, what is the impact on break-even and the margin of safety if Paul takes Mary Jane’s advice and increases sales commission to 15%?arrow_forward
- If this is the Overall break even point = Fixed cost / Contribution margin ratio = $16,650,000 / 64.74% = $25,718,257 approx And if the sales commission increases to 15%, the variable costs will increase thereby the contribution margin will decrease. This will also decrease the contribution margin ratio. When the contribution margin ratio decreases, the break-even point will increase, and when the break-even point increases the margin of safety will decrease. What happens: If Mirabel purchases the new equipment for $1,200,000, it will increase fixed costs by 10% but will decrease the variable cost per unit for all 3 models by 5%. What will Mirabel’s new break-even point be? If Mirabel invests the additional $650,000 in fixed marketing expenses, sales of the Model 301 are expected to increase by 8%. What is the break-even and margin of safety under these circumstances? If the projection is that sales will…arrow_forwardBreak-Even and Target Profit Analysis Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company’s fixed expenses are $180,000 per year. The company plans to sell 16,000 units this year. Required: 1. What are the variable expenses per unit? 2. What is the break-even point in unit sales and in dollar sales? 3. What amount of unit sales and dollar sales is required to attain a target profit of $60,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $60,000?arrow_forwardContribution margin Waite Company sells 250,000 units at $120 per unit. Variable costs are $78 per unit, and fixed costs are $8,175,000. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) operating income. Break-even point Freese Inc. sells a product for $650 per unit. The variable cost is $455 per unit, while fixed costs are $4,290,000. Determine (a) the break-even point in sales units and (b) the break-even point if the selling price were increased to $655 per unit.arrow_forward
- Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $ 9,900,000 Total variable cost 6,039,000 Contribution margin $ 3,861,000 Total fixed cost 2,465,034 Operating income $ 1,395,966arrow_forwardBreak-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Line Item Description Total Sales $ 13,050,000 Total variable cost 8,482,500 Contribution margin $ 4,567,500 Total fixed cost 2,664,375 Operating income $ 1,903,125 Required: 1(a). Compute variable cost per unit. Enter your answer to the nearest cent. fill in the blank 1 of 1$ 18.85 per unit 1(b). Compute contribution margin per unit. Enter your answer to the nearest cent. fill in the blank 1 of 1$ 10.15 per unit 1(c). Compute contribution margin ratio. Enter to one decimal point. fill in the blank 1 of 1 35 % 1(d). Compute break-even point in units. Reminder: round-up to ensure partial units are completed. fill in the blank 1 of 1 262,500 units 1(e). Compute break-even point in sales dollars. fill in the blank 1 of 1$ 7,612,500 2. How…arrow_forwardBreak-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $ 11,700,000 Total variable cost 6,669,000 Contribution margin $ 5,031,000 Total fixed cost 3,083,444 Operating income $ 1,947,556 Required: 1(a). Compute variable cost per unit. Enter your answer to the nearest cent.$per unit 1(b). Compute contribution margin per unit. Enter your answer to the nearest cent.$per unit 1(c). Compute contribution margin ratio. % 1(d). Compute break-even point in units. units 1(e). Compute break-even point in sales dollars.$ 2. How many units must be sold to earn operating income of $404,716? units 3. Compute the additional operating income that Jellico would earn if sales were $50,000 more than expected.$ 4. For the projected level of sales, compute the margin of safety in units, and then in…arrow_forward
- Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company's projected profit for the coming year is as follows: Total Per Unit Sales $1,407,000 $28.00 Total variable cost 590,940 11.76 Contribution margin $ 816,060 $ 16.24 Total fixed cost 685,490 Operating income $ 130,570 Required: 1. Compute the break-even point in units. If required, round your answer to nearest whole value. units 2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value. units 3. Compute the contribution margin ratio. If required, round your answer to nearest whole number. % Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected.$ 4. For the projected level of sales, compute the margin of safety in units. unitsarrow_forwardContribution Margin Income Statement of a single product company Total Per unit Sales $1,200,000 $80 Less variable expenses $840, 000 $56 Contribution Margin 360,000 $24 Less fixed expenses 300,000 Net Operating income $60,000 Required: Calculate break-even point in units and dollars. What is the contribution margin at break-even point? Compute the number of units to be sold to earn a profit of $36,000. Compute the margin of safety using original data. Compute CM ratio. Compute the expected increase in monthly net operating if sales increase by $160,000 and fixed expenses do not change.arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub