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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Break-even sales and cost-volume-profit chart

For the coming year, Cleves Company anticipates a unit selling price of $100, a unit variable cost of $60, and fixed costs of $180,000.

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 tile relevant range.

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

1.

To determine

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

To compute: the anticipated break-even sales (units).

Explanation

Compute the anticipated break-even sales (units).

Fixed cost =$480,000

Contribution margin per unit =$40 per unit (1)

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit=$480,000$40perunit=12,000units

Working note:

Determine the contribution margin per unit

2.

To determine
the amount of sales (units) if the company desires a target profit of $240,000.

3.

To determine

To construct: a cost-volume-profit chart assuming the sales of 20,000 units within the relevant range.

4.

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

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