For the coming year, Cleves Company anticipates a unit selling price of $120, a

Question

For the coming year, Cleves Company anticipates a unit selling price of $120, a unit variable cost of $60, and fixed costsof $552,000.

Required:

1. Compute the anticipated break-even sales (units).
units

2. Compute the sales (units) required to realize a target profit of $270,000.
units

3. Construct a cost-volume-profit chart, assuming maximum sales of 18,400 units within the relevant range. From your chart, indicate whether each of the following sales levels would produce a profit, a loss, or break-even.

4. Determine the probable income (loss) from operations if sales total 14,700 units. If required, use the minus sign to indicate a loss.
$

$1,548,000 $1,380,000 $1,104,000 $828,000 $660,000

Explanation / Answer

1) Contribution Margin per unit = Selling price - Variable cost

= $120 - $60 = $60 per unit

Break Even Sales (units) = Fixed Cost/Contribution Margin per unit

= $552,000/$60 per unit = 9,200 units

2) Units required to be sold = (Fixed Cost+Target Profit)/Contribution Margin per unit

= ($552,000+$270,000)/$60 per unit

= $822,000/$60 per unit = 13,700 units

3) Break Even Sales in $ = Break even units*Selling price

= 9,200 units*$120 per unit = $1,104,000

The sales above $1,104,000 will generate profit and sales below $1,104,000 will result in loss.

4) Net Income = Total Contribution Margin - Fixed Cost

= (14,700 units*$60 per unit) - $552,000

= $882,000 - $552,000 = $330,000

Sales Profit/(Loss) or Break Even $1,548,000 Profit $1,380,000 Profit $1,104,000 Break Even $828,000 (Loss) $660,000 (Loss)

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