Break-even analysis: It is an analysis of sales revenue or unit where a company is neither earning profits nor incurring any loss.
The preparation of contribution format income statement and break-even analysis.
Answer to Problem 12E
Solution:
1) Contribution formal income statement for the company as a whole. Carry computations to one decimal place is shown below:-
Product | |||
Fight Dynamic | Sure Shot | Total | |
Sales | $150,000 | $250,000 | $400,000 |
CM ratio | 80% | 36% | 52.5% |
Olongapo Sports Corporation’s Contribution format income statement | |
Total | |
Sales | $400,000 |
Variable expenses | $190,000 |
Contribution Margin | $210,000 |
Fixed expenses | $183,750 |
Net operating income | $26,250 |
2) The Break-even point in dollar sales based on the current sales mix is $ 350,000
3) The contribution format income statement with increase in sales by $ 100,000 is shown below:-
Olongapo Sports Corporation’s Contribution format income statement | |
Total | |
Sales | $500,000 |
Variable expenses | $237,500 |
Contribution Margin | $262,500 |
Fixed expenses | $183,750 |
Net operating income | $78,750 |
It is assume that when sales increase by $100,000, the variable expense increase by 25% and the net operating income increases by 200%.
Explanation of Solution
Given:
Product | |||
Fight Dynamic | Sure Shot | Total | |
Sales | $150,000 | $250,000 | $400,000 |
CM ratio | 80% | 36% | ? |
Fixed expenses total $183,750 per month.
Hence it is concluded that the Mauro Products will neither earn
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