Ore Company produces bookcases. Sales were good in 2019. However, with the slowdown in the economy, the Chief Financial Officer is concerned about the sales for 2020. The income statement for 2020 is as follows: Sales revenue $600,000 Less: Variable costs $360,000 Contribution margin $240,000 Less: Fixed costs $140,000 Net profit $100,000 The company expects to sell 60,000 units in 2020. Compare different types of cost behaviours to do the following: (a) Use cost-volume-profit analysis to determine the breakeven point in units and in dollars. (b) Use cost-volume-profit analysis to determine the margin of safety in units and in dollars. (c) Assuming that cost behaviour pattern remains unchanged, compute the decrease in net income if sales revenue dropped by $200,000 in 2020.
Ore Company produces bookcases. Sales were good in 2019. However, with the
slowdown in the economy, the Chief Financial Officer is concerned about the sales for
2020.
The income statement for 2020 is as follows:
Sales revenue $600,000
Less: Variable costs $360,000
Contribution margin $240,000
Less: Fixed costs $140,000
Net profit $100,000
The company expects to sell 60,000 units in 2020. Compare different types of cost
behaviours to do the following:
(a) Use cost-volume-profit analysis to determine the breakeven point in units and in
dollars.
(b) Use cost-volume-profit analysis to determine the margin of safety in units and in
dollars.
(c) Assuming that cost behaviour pattern remains unchanged, compute the decrease
in net income if sales revenue dropped by $200,000 in 2020.
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