Concept explainers
(a)
Breakeven Point:
The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.
To compute:
The breakeven point if the fixed cost is
Answer to Problem 22E
The breakeven point is
Explanation of Solution
Fixed cost is
Contribution margin is
The break-even point in units is calculated as:
(b)
Concept introduction:
Breakeven Point:
The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.
To prove:
The breakeven point by using contribution margin statement.
Answer to Problem 22E
The breakeven point is
Explanation of Solution
Income Statement:
Particulars | Amount |
Sales Price |
|
Variable Cost per Canoe |
|
Contribution Margin |
|
Less: Fixed Cost | |
Profit |
(c)
Concept introduction:
Target Profit:
The target profit is that profit which a company decides to achieve and this analysis helps in determinig the level of sales by which this target can be achieved.
The total sales to achieve target profit of
Answer to Problem 22E
The target sale point is
Explanation of Solution
Fixed cost is
Contribution margin is
The total sales for achieving the target profit are calculated as:
(d)
Concept introduction:
Target Profit:
The target profit is that profit which a company decides to achieve and this analysis helps in determinig the level of sales by which this target can be achieved.
To prove:
The target sale by using contribution margin statement.
Answer to Problem 22E
The target sale is
Explanation of Solution
Income Statement:
Particulars | Amount |
Sales Price |
|
Variable Cost per Canoe |
|
Contribution Margin |
|
Less: Fixed Cost | |
Profit |
(e)
Concept introduction:
Margin of Safety:
The margin of safety is the margin enjoyed by the company which is achieved over and above the breakeven sales. It is a difference of actual sales and breakeven sales.
To compute:
The margin safety in units and percentage of sales.
Answer to Problem 22E
The margin safety is
Explanation of Solution
The actual sales amount to
The breakeven sales amount to
The margin of safety in terms of amount is calculated as:
The margin of safety in terms of percentage of sales is calculated as:
Want to see more full solutions like this?
Chapter 6 Solutions
MANAGERIAL ACCOUNTING W/CONNECT
- Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?arrow_forwardKlamath Company produces a single product. The projected income statement for the coming year is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. 2. Suppose 10,000 units are sold above break-even. What is the operating income? 3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue. (Note: Round the contribution margin ratio to four decimal places, and round the sales revenue to the nearest dollar.) Suppose that revenues are 200,000 more than expected for the coming year. What would the total operating income be?arrow_forwardA company is making plans for next year, using cost-volume-profit analysis as its planning tool. Next year's sales data about its product are as follows Selling price P60 Variable manufacturing costs per unit 22.50 Variable selling and administrative costs 4.5 Fixed operating costs (60% is manufacturing costs) P159,500 Income tax rate 30% How much should sales be next year if the company wants to earn profit after tax of P23,100, the same amount that it earned last year?arrow_forward
- Current Attempt in Progress Moss, Inc. has total fixed costs of $56,000 and a contribution margin ratio of 40%. Moss wants to generate net income totaling $35,000. How much will sales revenue be at Moss target net income? O $57,400. O $140,000. O $227,500. O $127,400.arrow_forwardKreter, Inc. earned net income of $300,000 last year. This year it wants to earn net income of $450,000. The company's fixed costs are expected to be $300,000, and variable costs are expected to be 70% of sales. Determine the required sales to meet the target net income of $450,000 using the mathematical equation. Required sales $ Using a CVP income statement format, prove your answer. Fixed costsTarget net income / (Loss)SalesVariable costsContribution margin $ Contribution marginFixed costsTarget net income / (Loss)SalesVariable costs Contribution marginSalesVariable costsFixed costsTarget net income / (Loss) Fixed costsVariable costsSalesTarget net income / (Loss)Contribution margin SalesFixed costsContribution marginVariable costsTarget net income / (Loss) $arrow_forwardSandhill Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes. $41.17 Sales price Variable cost of goods sold Variable selling expenses Variable administrative expenses 13.17 11.77 4.17 Annual fixed expenses $15,600,000 Overhead Selling expenses 3,100,000 6,500,000 Administrative expenses Sandhill can produce 3,000,000 cases a year. The projected net income for the coming year is expected to be $3,600,000. Sandhill is subject to a 40% income tax rate. During the planning sessions, Sandhill's managers have been reviewing costs and expenses. They estimate that the company's variable cost of goods sold will increase 15% in the coming year and that fixed administrative expenses will increase by $300,000. All other costs and expenses are expected to remain the same.arrow_forward
- The following is yearly information on two main sources for the company profit: Row material Labor cost Unit made Demand price cost PRODUCT A $30 $100 3000 1850 250 PRODUCT B $45 $78 2500 2100 170 The fixed cost is estimated to be $1000 annually. Based on the above information find the following: 1- The company yearly profit 2- Use goal seek to find the following a. At what PRODUCT B demand both products will generate the same revenuc? b. How much they should produce from each Product A and B, to reach a profit of $500,00, if the demand of them is equal to .75 of the production and Product A should be 50% of Product B. 3- If the company will sell the same amount from Product A and Product B which represents 65% for Product A and 76% for Production B, how much they should produce from both the get profit of $750,000arrow_forwardProblem II. Omega Enterprises sells two products, Model E100 and F900. Monthly sales and the contribution margin ratios for the two products, follow: Product E100 F900 Total Sales P 700,000 P 300,000 P 1,000,000 Contribution margin ratio 60% 70% The Company’s fixed expenses total P598,500 per month. What is the company’s total contribution margin ratio? What is the company’s total net operating income? The break-even point for the company based on the current sales mix is ______.arrow_forwardAnalyzing CVP relationships Crandall Company sells flags with team logos. Crandall has fixed costs of $583,200 per year plus variable costs of $4.80 per flag. Each flag sells for $12.00. Requirements Use the equation approach to compute the number of flags Crandall must sell each year to break even. Use the contribution margin ratio approach to compute the dollar sales Crandall needs to earn $33,000 in operating income for 2018. (Round the contribution margin ratio to two decimal places.) Prepare Crandall’s contribution margin income statement for the year ended December 31, 2018, for sales of 70,000 flags. (Round your final answers up to the next whole number.) The company is considering an expansion that will increase fixed costs by 21% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should Crandall undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)arrow_forward
- EXERCISE 5-11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio [LO1, LO3, LO5, LO6, LO7] Pringle Company distributes a single product. The company's sales and expenses for a recent month follow: Total Per Unit Sales ...... $600,000 $40 Variable expenses 420,000 28 Contribution margin . Fixed expenses . Net operating income 180,000 $12 150,000 $ 30,000arrow_forwardRequirements: What is the margin of safety as percentage and in unit? Assume that next month management wants the company to earn a profit of $80,000. How many units will have to be sold to meet the target profit?arrow_forwardCalculate the number of helmets Head-First must sell to earn operating income of $81,900. _____________helmets Refer to the list below for the exact wording of text items within your income statement. Amount Descriptions Operating income Operating loss Sales Total contribution margin Total fixed cost Total variable cost Units to Earn Target Income Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sell to earn operating income of $81,900. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculatedarrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning