   Chapter 11, Problem 11.4.2P

Chapter
Section
Textbook Problem

Break-even sales and cost-volume-profit graph Last year, Ridgecrest Inc. had sales of \$3,200,000. based on a unit selling price of (400. The variable cost per unit was \$240. and fixed costs were \$1,088,000. The maximum sales within Ridgecrest Inc.'s relevant range are 10.000 units. Ridgecrest Inc. is considering a proposal to spend an additional \$160,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity. Instructions Using the cost-volume-profit graph prepared in pan (1), determine (a) the operating income for last year and (b) the maximum operating income that could have been realized during the year. Verify your answers arithmetically.

To determine

Concept Introduction:

Cost volume profit graph: On this graph we show the sales, total cost and fixed cost and this help us to identify our breakeven point on graphical value.

Operating Income: The profit earned by the company is called the operating income of the firm.

To Calculate:

Find Operating income for last year and the operating income at maximum level?

Explanation

Current operating income= Sales- Variable cost- fixed cost

= 3200000- 1920000- 1088000

= 192000...

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