Annual sales volume Unit selling price Variable expense per unit Contribution margin per unit Velcro 101,000 $ 1.65 $ 1.25 $ 0.40 Metal 202,000 $ 1.50 $ 0.70 $ 0.80 Nylon 404,000 $ 0.85 $ 0.25 $ 0.60 Total fixed expenses are $404,000 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $244,000 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business.
Annual sales volume Unit selling price Variable expense per unit Contribution margin per unit Velcro 101,000 $ 1.65 $ 1.25 $ 0.40 Metal 202,000 $ 1.50 $ 0.70 $ 0.80 Nylon 404,000 $ 0.85 $ 0.25 $ 0.60 Total fixed expenses are $404,000 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $244,000 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Annual sales volume
Unit selling price
Variable expense per unit
Contribution margin per unit
Velcro
101,000
$1.65
$ 1.25
$0.40
Metal
202,000
$1.50
Total fixed expenses are $404,000 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped,
$80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $244,000
consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going
out of business.
$ 0.70
$0.80
The company's managers would like to compute the break-even point in dollar sales for the company as a whole, and the break-even
point in unit sales for each product. They are considering two methods for computing each product's break-even point in unit sales:
Required 1
Method number 1. Include each product's traceable fixed costs and an allocated share of the common fixed costs in the numerator of
each break-even calculation. The common fixed costs would be allocated to the three products using sales dollars as the allocation
base.
Method number 2: Only include each product's traceable fixed costs in the numerator of each break-even calculation.
Required:
1. Using data from the most recent period, prepare a contribution format segmented income statement.
2. What is the company's overall break-even point in dollar sales?
Required 2
Nylon
404,000
$ 0.85
$ 0.25
$ 0.60
3a. Calculate the break-even point in unit sales for each product using method 1.
3b. What will be the company's overall profit if it sells exactly the break-even quantity of each product?
4a. Calculate the break-even point in unit sales for each product using method 2.
4b. What will be the company's overall profit if it sells exactly the break-even quantity of each product?
5. Which method should the company use to calculate each product's break-even point in unit sales?
Complete this question by entering your answers in the tabs below.
4a. Velcro's Break-even point in units
4a. Metal's Break-even point in units
4a. Nylon's Break-even point in units
4b. Overall profit (loss)
Required 3a Required 4a
and 3b
and 4b
Required 5
4a. Calculate the break-even point in unit sales for each product using method 2.
4b. What will be the company's overall profit if it sells exactly the break-even quantity of each product?
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VIEWStep 2: (1) Prepare a contribution format segmented income statement:
VIEWStep 3: (2) Compute the company's overall break-even point in dollar sales:
VIEWStep 4: (3a) Compute the break-even point in unit sales for each product:
VIEWStep 5: (3b) Compute the overall profit of the company:
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