Last year, Hever Inc. had sales of $167,400, based on a unit selling price of $90. The variable cost per unit was $70, and fixed costs were $25,800. The maximum sales within Hever's relevant range are 2,300 units. Hever Inc. is considering a proposal to spend an additional $8,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity. 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 4. Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 1,860 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 1,860 units Maximum income from operations
Break-Even Sales and Cost-Volume-Profit Chart
Last year, Hever Inc. had sales of $167,400, based on a unit selling price of $90. The variable cost per unit was $70, and fixed costs were $25,800. The maximum sales within Hever's relevant range are 2,300 units. Hever Inc. is considering a proposal to spend an additional $8,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity.
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 |
4. Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 1,860 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 1,860 units | |
| Maximum income from operations |
Contribution Margin = Sales – Variable cost
Contribution Margin Ratio = contribution/sales x 100
Break even sales (dollars) = Fixed costs/ Contribution Margin Ratio
Break even sales (units) = Fixed costs/ Contribution Margin
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