Concept Introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
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
To Calculate:
The Breakeven unit sales under the proposed program
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Chapter 11 Solutions
Survey of Accounting (Accounting I)
- Break-even sales under present and proposed conditions Howard Industries Inc., operating at full capacity, sold 64,000 units at a price of 45 per unit during the current year. Its income statement is as follows: The division of costs between variable and fixed is as follows: Management is considering a plant expansion program for the following year that will permit an increase of 900,000 in yearly sales. The expansion will increase fixed costs by 212,500 but will not affect the relationship between sales and variable costs. Instructions Determine the total fixed costs and the total variable costs for the current year. Determine (A) the unit variable cost and (B) the unit contribution margin for the current year. Compute the break-even sales (units) for the current year. Compute the break-even sales (units) under the proposed program for the following year. Determine the amount of sales (units) that would be necessary under the proposed program to realize the 692,500 of operating income that was earned in the current year. Determine the maximum operating income possible with the expanded plant. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? Based on the data given, would you recommend accepting the proposal? Explain.arrow_forwardBreak-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine for 20Y5 the total fixed costs and the total variable costs.arrow_forwardGelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs per gas grill are 225, and the average price per gas grill is 600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelbart Company sells 46,775 gas grills in a year, what is the operating income? 3. If Gelbart Companys variable costs increase to 240 per grill while the price and fixed costs remain unchanged, what is the new break-even point?arrow_forward
- Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine the maximum operating income possible with the expanded plant.arrow_forwardBolger and Co. manufactures large gaskets for the turbine industry. Bolgers per-unit sales price and variable costs for the current year are as follows: Bolgers total fixed costs aggregate to 360,000. Bolgers labor agreement is expiring at the end of the year, and management is concerned about the effects of a new labor agreement on its break-even point in units. The controller performed a sensitivity analysis to ascertain the estimated effect of a 10-per-unit direct labor increase and a 10,000 reduction in fixed costs. Based on these data, the break-even point would: a. decrease by 1,000 units. b. decrease by 125 units. c. increase by 375 units. d. increase by 500 units.arrow_forwardYoungstown Construction plans to discontinue its rooting segment. Last year, this segment generated a contribution margin of $65.000 and incurred $70.000 in fixed costs. Discontinuing the segment will allow the company to avoid half of the fixed costs. What effect is expected to occur to the companys overall profit? A. a decrease of $5,000 B. a decrease of $30,000 C. a decrease of $5,000 D. an increase of $30,000arrow_forward
- Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales $ 7,100,000 Variable costs (50% of sales) 3,550,000 Fixed costs 2,010,000 Earnings before interest and taxes (EBIT) $ 1,540,000 Interest (10% cost) 620,000 Earnings before taxes (EBT) $ 920,000 Tax (30%) 276,000 Earnings after taxes (EAT) $ 644,000 Shares of common stock 410,000 Earnings per share $ 1.57 The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $4.1 million in additional financing. His investment banker has laid out three plans for him to consider: Sell $4.1 million of debt at 11 percent. Sell $4.1 million of common stock at $20 per share. Sell $2.05 million of debt at 10 percent and $2.05 million of common stock at $25 per share. Variable costs are expected to stay at 50 percent of sales, while fixed…arrow_forwardDelsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales $ 6,300,000 Variable costs (50% of sales) 3, 150,000 Fixed costs 1,930, 000 Earnings before interest and taxes (EBIT) $ 1,220, 000 Interest (10% cost) 460,000 Earnings before taxes (EBT) $760,000 Tax (35 %) 266, 000 Earnings after taxes (EAT) $ 494, 000 Shares of common stock 330, 000 Earnings per share $ 1.50 The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $3.3 million in additional financing. His investment banker has laid out three plans for him to consider: Sell $3.3 million of debt at 9 percent. Sell $3.3 million of common stock at $15 per share. Sell $1.65 million of debt at 8 percent and $1.65 million of common stock at $20 per share. Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to…arrow_forwardDrake Company produces a single product. Last year's income statement is as follows: Sales (21,000 units) $1,278,900 Less: Variable costs 879,900 Contribution margin $399,000 Less: Fixed costs 259,800 Operating income $139,200 Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $234,100 per year, but will lower variable costs to 42 percent of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming Drake makes this investment. Round all amounts to the nearest dollar. Drake CompanyBudgeted Income Statement $Sales = 1278900 Less: Variable costs = 537138 $Contribution margin = 741762 Less: Fixed costs = 493900 $Net income = 247862 Question Content Area What is the new break-even point in units, assuming the investment is made? In your computations, round the unit contribution margin to the nearest cent. Round your final answer to the…arrow_forward
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