Answer:
Required 1.
Break even point (dollar sales) = $750,000
Required 2.
Break even point (dollar sales) = $1,250,000
Required 3.
ASTRO COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2016
Sales $ 1,000,000
Variable costs ($ 400,000
)
Contribution margin $ 600,000
Fixed costs ($ 450,000
)
Net loss $ 150,000
Required 4.
Sales to meet target profit (dollar sales) = $1,833,333
Sales to meet target profit (unit sales) = 73,334
Explanation:
Break even point is the level of activity where a Company neither makes a profit nor a loss.
<em>Break even point (dollar sales) = Fixed Cost / Contribution Margin Ratio</em>
Where,
Contribution Margin Ratio = Contribution / Sales
= $ 200,000 / $ 1,000,000
= 0.20
Therefore,
Break even point (dollar sales) = $250,000 / 0.20
= $1,250,000
<u>Assuming the machine is installed</u>
Contribution Margin Ratio = ($ 1,000,000 - $400,000) / $ 1,000,000
= $600,000 / $1,000,000
= 0.60
Therefore,
Break even point (dollar sales) = ($250,000 + $200,000) / 0.60
= $750,000
Sales to meet target profit of $200,000
Sales to meet target profit (dollar sales) = Fixed Cost + Target Profit / Contribution Margin Ratio
= ($450,000 + $200,000) / 0.60
= $1,833,333
Sales to meet target profit (unit sales) = $1,833,333 / $25
= 73,334
