Break-Even Sales and Cost-Volume-Profit Chart Last year, Hever Inc. had sales of
ID: 2572167 • Letter: B
Question
Break-Even Sales and Cost-Volume-Profit Chart Last year, Hever Inc. had sales of227,700, based on a unit selling price of $90. The variable cost per unit was $70, and fixed costs were $35,200. The maximum sales within Hever's relevant range are 3,200 units. Hever Inc. is considering a proposal to spend an additional 10 000 on billboard advertising during the current year in an attempt to increase sales and utilize nu se capacit. 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 realized 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 $158400 1760 $15400 $28800 $203400 2260 4. Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 2,530 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 2,530 units Maximum income from operations $5400 $18800Explanation / Answer
Ans 1 Break even in $ 158400 35200/.2222 Breakeven sales in units 1760 Fixed cost/CM 35200/(90-70) ans 2 Sales 227700 Less: variable cost 177100 (2530*70) Contribution Margin 50600 Less: fixed cost 35200 Net Operating income 15400 Maximum income Sales 288000 Less: variable cost 224000 (3200*70) Contribution Margin 64000 Less: fixed cost 35200 Net Operating income 28800 ans 3 Break even in $ 203400 45200/.2222 Breakeven sales in units 2260 Fixed cost/CM 45200/(90-70) ans 4 Sales 227700 Less: variable cost 177100 (2530*70) Contribution Margin 50600 Less: fixed cost 45200 Net Operating income 5400 Maximum income Sales 288000 Less: variable cost 224000 (3200*70) Contribution Margin 64000 Less: fixed cost 45200 Net Operating income 18800 All answers provided are correct