Break-Even Sales and Cost-Volume-Profit Chart Last year, Hever Inc. had sales of
ID: 2571709 • Letter: B
Question
Break-Even Sales and Cost-Volume-Profit Chart Last year, Hever Inc. had sales of $445,500, based on a unit selling price of $150. The variable cost per unit was $110, and fixed costs were $82,400. The maximum sales within Hever's relevant range are 3,700 units. Hever Inc. is considering a proposal to spend an additional $24,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity Required: 1. Construct a cost-volume-profit chart on your own paper, indicating the break-even sales for last year. In your computations, do not round the contribution margin percentage Break-even sales (dollars) Break-even sales (units) 2. Using the cost-volume-profit chart prepared in part (1), determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realizec during the year. In your computations, do not round the contribution margin percentage. Income from operations Maximum income from operations 3. Construct a cost-volume-profit chart (on your own paper) indicating the break-even sales for the current year, assuming that a noncancelable contract is signed for the additional billboard advertising. No changes are expected in the unit selling price or other costs. In your computations, do not round the contribution margin percentage Dollars Units 4. Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 2,970 units and (b) the maximum income from operations that could be realized during the year. In your computations, do not round the contribution margin percentage. Income from operations at 2,970 unitsExplanation / Answer
Sales = 445,500
Selling price = 150
Units = 445,500 / 150 = 2,970
Variable cost per unit = 110
Fixed cost = 82,400
Contribution margin = Selling price - Variable costs = 150 - 110 = 40
1. Break-even sales (dollars) = Fixed costs / [(contribution margin per unit / selling price per unit)]
= 82,400 / [(40/150)] = 309,000
Break-even sales (units) = Fixed costs / Contribution margin per unit
= 82,400 / 40 = 2,060
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2.
Income from operations
Maximum Income from Operations
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3. Total fixed costs = 82,400 + 24,000 = 106,400
Break-even sales (dollars) = Fixed costs / [(contribution margin per unit / selling price per unit)]
= 106,400 / [(40/150)] = 399,000
Break-even sales (units) = Fixed costs / Contribution margin per unit
= 106,400 / 40 = 2,660
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4.
Income from operations at 2,970 units
Maximum Income from operations
Particulars Amount Sales 445,500 (-) Variable costs (2,970*110) (326,700) (-) Fixed costs (82,400) Income from operations 36,400