Answered: Sargent, Inc., sells a single product…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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Sargent, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90. The company’s monthly fixed expenses are $180,000.

A. What is the company’s break-even point in units?

B. What is the company’s break-even point in dollars?

C. Prepare a contribution margin income statement for the month of October when they will sell 10,000 units.

D. How many units will Sargent need to sell in order to realize a target profit of $300,000?

E. What dollar sales will Sargent need to generate in order to realize a target profit of $300,000?

F. Construct a contribution margin income statement for the month of August that reflects $2,400,000 in sales revenue for Sargent, Inc.

Expert Solution

Step 1 Introduction

Break-Even Point: There are many different aspects of business and finance that make use of a break-even point. In the context of finance and accounting, it is a reference to the level of output at which the total production income matches the entire production expenses. When it comes to investment, the moment at which the initial cost is equal to the market price is known as the breakeven point. In the meanwhile, the breakeven point in options trading is reached when the market price of an underlying asset reaches the level at which a buyer would not suffer a loss. This happens when the market price of an asset is equal to or greater than the strike price of the option.