Chapter 12, Problem 12.21P

To determine

Concept Introduction:

Variable costing: Variable costing is one of the methods of calculation of product costs. Under this method, only the variable manufacturing costs are considered as part of the product cost. Under this method, the income statement calculates contribution margin and net operating income.

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:

  $\text{Breakeven point }\left(\text{\$}\right)\text{ = }\frac{\text{Total Fixed Costs}}{\text{Contribution Margin Ratio}}$

Requirement-a:

To Prepare:

The contribution margin income statement

To determine

Concept Introduction:

Variable costing: Variable costing is one of the methods of calculation of product costs. Under this method, only the variable manufacturing costs are considered as part of the product cost. Under this method, the income statement calculates contribution margin and net operating income.

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:

  $\text{Breakeven point }\left(\text{\$}\right)\text{ = }\frac{\text{Total Fixed Costs}}{\text{Contribution Margin Ratio}}$

Requirement-b:

To Calculate:

The Operating income if the sales increase by 30%

To determine

Concept Introduction:

Variable costing: Variable costing is one of the methods of calculation of product costs. Under this method, only the variable manufacturing costs are considered as part of the product cost. Under this method, the income statement calculates contribution margin and net operating income.

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:

  $\text{Breakeven point }\left(\text{\$}\right)\text{ = }\frac{\text{Total Fixed Costs}}{\text{Contribution Margin Ratio}}$

Requirement-c:

To Calculate:

The amount of breakeven sales