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
Want to see more full solutions like this?
Chapter 6 Solutions
Introduction To Managerial Accounting
- Olongapo Sports Corporation distributes two premium golf balls-Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: Sales CM ratio Product Flight Dynamic $ 690,000 Fixed expenses total $557,000 per month. 60% Sure Shot $ 310,000 75% Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $53,000 a month, by how much would you expect the monthly net operating income to increase? Total $ 1,000,000 ? Complete this question by entering your answers in the tabs below. Flight Dynamic Amount Required 1 Required 2 Required 3 Prepare a contribution format income statement for the company as a whole. (Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) % Sure Shot Amount % Total Company Amount %arrow_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_forwardCVP Analysis, *What IT?" AnalysisKevin Co. projected contribution-format income statement for the upcoming month is shownBelow Sales (500 units) $10000Variable expenses. 4000Contributions margin. 6000Fixed expenses. 1000Net operating income. 5000Required:a.) Compute the breakeven point in units.b) Compute the breakeven paint in dollars.c.) If the company wishes to earn a monthly target profit of $10,000, how many units must be sold each month?d.) Compute the company's margin of safety. State your answer in both dollar and percentage terms,e.) The company's manager thinks that adding a salaried sales staff member at a cost of 52,000 per month will increase sales by $4,000 per month. If he is correct, what will be the net dollar advantage or disadvantage of making this change?t.) Refer to the original data, the company's manager believes that a new production process will improve profitability. He plans to add new machinery that will cut variable expenses…arrow_forward
- 8 Olongapo Sports Corporation distributes two premium golf balls-Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: 4 points eBook Sales CM ratio Fixed expenses total $583.500 per month. Flight Dynamic $ 710,000 63% Required 11 Required 2 Product Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $59,000 a month, by how much would monthly net operating income increase? Sales Variable expenses Contribution margin Fixed expenses Net operating income Sure Shot $ 290,000 75% Complete this question by entering your answers in the tabs below. Required 3 Total $ 1,000,000 Prepare a contribution format income statement for the company as a whole. Note: Round your percentage answers to 2 decimal places (1.e. 0.1234 should be entered as 12.34). Flight Dynamic Amountarrow_forwardA company sells one product and its contribution margin ratio is 20%. The company provides the following data regarding their operation: Current sales revenue Expected sales revenue next year Expected increase in net operating income next year $2,760,000 $2,870,400 20% Assuming that there is no change in total fixed expenses, what is the net operating income for the current year? Answer: $(Click to select)arrow_forwardDEF Company distributes two products, X and Y. Monthly sales for X are $150,000. Monthly sales for Y are $250,000. CM ratio for X is 70%. CM ratio for Y is 40%. Fixed expenses are $153,750 per month. Required: A) Prepare a contribution format income statement for the company as a whole. Calculate percentages to two decimal places. B) What is the company's breakeven point in dollar sales based on the current sales mix? C) What are the dollar sales of X and Y at the breakeven point you calculated in (B)?arrow_forward
- Net Income Planning Nolden Company has charged a selling price of $24 per unit, incurred variable costs of $15 per unit, and total fixed costs of $108,000. What unit sales volume is necessary to earn the following related amounts of net income before income tax? a. $18,000; b. $27,000; or c. equal to 20% of sales revenue. Round UP answers to the nearest unit, when applicable. (a) 0 (b) (C) 0 0 units units unitsarrow_forwardOlongapo Sports Corporation distributes two premium golf balls-Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: Sales CM ratio Product Flight Dynamic $ 650,000 68% Fixed expenses total $587,500 per month. Sure Shot $ 350,000 76% Total $ 1,000,000 ? Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $56,000 a month, by how much would monthly net operating income increase?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
- Analyzing CVP relationships White Company sells flags with team logos. White has fixed costs of $639,600 per year plus variable costs of $4.20 per flag. Each flag sells for $12.00 Requirements Use the equation approach to compute the number of flags White must sell each year to break even. Use the contribution margin ratio approach to compute the dollar sales White needs to earn $32,500 in operating income for 2018 (Round the contribution margin to two decimal places.) Prepare White’s contribution margin income statement for the year ended December 31, 2018, for sales of 73,000 Flags (Round your final answers up to the next whole number) The company is considering an expansion that will increase fixed costs by 23% variable costs by $0.60 per flag Compute the new breakeven point in units and in dollars. Should White undertake the expansion? Give your reasoning (Round your final answers up to the next whole number.)arrow_forwardFaldo 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_forwardSales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of 81,900 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning