Answer:
1. Break-even in units is 300 units
2. Break-even in dollars is $180,000
3. Contribution Income Statement for 500 units
Sales revenue (500 x 600) $300,000
Variable cost (500 x 360) (180,000)
Contribution margin $120,000
Fixed cost (72,000)
Profit $48,000
4. Units to sell is 800
5. Dollars sales is $480,000
6. Contribution Income Statement for $600,000 sales revenue
Sales revenue (1,000 x 500) $600,000
Variable cost (1,000 x 360) (360,000)
Contribution margin $240,000
Fixed cost (72,000)
Profit $168,000
Explanation:
1. To compute the Break-even point in units,
Formula is BEP = total fixed cost / unit contribution margin
Step 1. Compute the unit contribution margin
Unit selling price $600
Less : variable cost 360
Unit contribution margin $240
Step 2. compute the unit break-even in units using the formula.
BEP = total fixed cost / unit contribution margin
BEP = $72,000 / 240
BEP = 300 units
2. To compute the Break-even point in dollars,
Formula is BES = total fixed cost / contribution margin ratio
Step 1. Compute the contribution margin ratio
Unit selling price $600
Less : variable cost 360
Unit contribution margin $240
So, $240 divided by $600 equals 40% (CMR)
Step 2. compute the unit break-even in dollars using the formula.
BEP = total fixed cost / contribution margin ratio
BEP = $72,000 / 40%
BEP = $180,000
3. To prepare the contribution margin income statement, we will multiply the units sold of 500 units by $600 to get the sales revenue. Then multiply 500 units by $360 to get the variable cost. Further illustration below;
Sales revenue (500 x 600) $300,000
Variable cost (500 x 360) (180,000)
Contribution margin $120,000
Fixed cost (72,000)
Profit $48,000
4. To compute the units to sell to realize the target profit we will use the formula:
(Total fixed cost + Target profit )/ unit contribution margin
Step 1. Compute the unit contribution margin
Unit selling price $600
Less : variable cost 360
Unit contribution margin $240
Step 2. compute the units to sell using the formula.
(Total fixed cost + target profit) / unit contribution margin
($72,000 + $120,000) / 240
Answer is 800 units
5. To compute the sales in dollars to realize the target profit of $120,000,
Formula is (Total fixed cost + target profit) / contribution margin ratio
Step 1. Compute the contribution margin ratio
Unit selling price $600
Less : variable cost 360
Unit contribution margin $240
So, $240 divided by $600 equals 40% (CMR)
Step 2. compute the target sales in dollars using the formula.
(Total fixed cost + target profit) / contribution margin ratio
($72,000 + $120,000) / 40%
$192,000 / 40%
Answer is $480,000
6. Contribution Income Statement for $600,000 sales revenue. FIRST we must determine how many unit are sold to have that sales revenue. $600,000 sales revenue divided by unit selling price of $600 equals 1,000 units. To further illustrate, see presentation below.
$600,000 / $600 = 1,000 units
Sales revenue (1,000 x 600) $600,000
Variable cost (1,000 x 360) (360,000)
Contribution margin $240,000
Fixed cost (72,000)
Profit $168,000
