Break-Even Sales and Cost-Volume-Profit Chart For the coming year, Sorkin Compan
ID: 2561474 • Letter: B
Question
Break-Even Sales and Cost-Volume-Profit Chart
For the coming year, Sorkin Company anticipates a unit selling price of $78, a unit variable cost of $39, and fixed costs of $257,400.
Required:
1. Compute the anticipated break-even sales in units.
units
2. Compute the sales (units) required to realize income from operations of $132,600.
units
3. Construct a cost-volume-profit chart, assuming maximum sales of 13,200 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.
$717,600
$647,400
$514,800
$390,000
$312,000
4. Determine the probable income (loss) from operations if sales total 10,600 units. If required, use the minus sign to indicate a loss.
$
Explanation / Answer
Break-even point is the level of sales that a company must achieve to reach at no profit no loss situation,
The formula to calculate BEP (in units) = Total Fixed cost/(selling price per unit - variable cost per unit)
Where,
Fixed cost = $257400
Selling price = 78 per unit
Variable cost = 39 per unit
Let's put all the values in the formula to get the BEP in units,
BEP = 257400/ (78 - 39)
BEP = 257400/39
BEP = 6600 Units
So to reach the BEP company must sell 6600 units
Sale required to achieve desired profit = (Fixed cost + Desired profit)/ (Sales price per unit - Variable cost per unit)
Where,
Fixed cost = $257400
Selling price = $78
Variable cost = $39
Desired profit = $132600
Let's put all the values in the formula,
Required sale = (257400 + 132600)/ (78 - 39)
= 390000/ 39
= 10000
So to reach desired profit of $132600 required units that must be sold is 10000 units