Problem 18-3A CVP analysis and charting LO P2, P3 [The following information app
ID: 341825 • Letter: P
Question
Problem 18-3A CVP analysis and charting LO P2, P3
[The following information applies to the questions displayed below.]
Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $230 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $331,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $161 per 100 yards of XT rope.
Problem 18-3A Part 2
3. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.
PRAVEEN CO. Contribution Margin Income Statement (at Break-Even) — Product XT Units $ per unit Total Sales Less: Variable cost Contribution margin Less: Fixed costs Net incomeExplanation / Answer
PRAVEEN CO. Contribution Margin Income Statement (at Break-Even) — Product XT Units $ per Unit Total Sales 4,800 230 11,04,000 Less: Variable cost 4,800 161 7,72,800 Contribution Margin 69 3,31,200 Less: Fixed Costs 3,31,200 Net Income - Break even point = Fixed cost / Contribution Margin per unit Break even point = 331,200/$69 Break even point = 4,800 units of 100 yards