   Chapter 11, Problem 11.3.2P

Chapter
Section
Textbook Problem

Break-even sales and cost-volume-profit graph For the coming year, Bernardino Company anticipates a unit selling price of $85, a unit variable cost of$15. and fixed costs of $420,000. Instructions Compute the sales (units) required to realize operating income of$70,000.

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in $is calculated with the help of following formula: Breakeven point (units) = Total Fixed Costs(Sales Price Per unit -Variable Cost per unit) To Calculate: The Sales units required to realize the desired profit Explanation The Sales units required to realize the desired profit are calculated as follows:  Selling Price per unit (A)$ 85 Variable Cost per unit (B) \$ 15 Contribution Margin Per u...

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