
1.
To identify: Break- even point of sales in dollars for year 2017.
1.

Explanation of Solution
Given,
Fixed cost is $250,000.
Calculated values,
Contribution margin ratio is 20% or 0.2 (from working note).
Formula to calculate break-even point of sales in dollars,
Substitute $250,000 for fixed cost and 0.2 for contribution margin ratio.
Working note:
Given,
Sales are $1,000,000.
Contribution margin is $200,000.
Formula to calculate contribution margin ratio,
Hence, contribution margin ratio is 20%.
Hence, break-even point of sale is $1,250,000.
2.
To identify: Break- even point of sales in dollars for year 2018.
2.

Explanation of Solution
Given,
Fixed cost is $450,000
Units sold are 40,000 units.
Calculated values,
Contribution margin ratio is 60% or 0.6 (from working note).
Formula to calculate break-even point of sales in dollars,
Substitute $450,000 for fixed cost and 0.6 for contribution margin ratio.
Working note:
Calculation of selling price per unit,
Calculation of sales in 2018,
Calculation of variable cost per unit,
As new machine reduced variable cost up to 50%, so the new variable cost will be $20.
Calculation of variable cost in 2018,
Calculation of contribution margin,
Formula to calculate contribution margin ratio,
Hence, contribution margin ratio is 60%.
Hence, break-even point of sale is $750,000.
3.
To prepare: A
3.

Explanation of Solution
Statement to show the contribution margin income statement
Particulars | Amount ($) |
Sales | 1,000,000 |
Less: Variable Cost | 400,000 |
Contribution Margin | 600,000 |
Less: Fixed Cost | 450,000 |
Pre Tax Income | 150,000 |
Working note:
Given,
The numbers of units sold is 20,000.
Calculated values (working note),
The selling price is $50.
Variable cost per unit is $40.
Calculation of total sales,
The total sales are $1,000,000.
Calculation of total variable cost,
The total variable cost is $800,000. As new machine reduced variable cost up to 50%, so the new variable cost will be $400,000.
Hence, the pretax income of Company A is $150,000.
4.
To identify: The required sales unit to earn the target income.
4.

Explanation of Solution
Given,
Fixed cost is $450,000.
Target net income is $200,000.
Calculated,
Unit contribution margin is $30.
Formula to calculate required sales will be,
Substitute $450,000 for fixed cost, $200,000 for target net income and $30 for unit contribution margin.
Working note:
Given,
Per unit selling price is $50.
Per unit variable cost is $20.
Calculation of unit contribution margin,
Calculation of required sales in dollars,
Hence, required sales are 21,667 units and $1,083,350.
5.
To prepare: A
5.

Explanation of Solution
Statement to show the contribution margin income statement
Particulars | Amount ($) |
Sales | 1,083,333 |
Less: Variable Cost | 433,333 |
Contribution Margin | 650,000 |
Less: Fixed Cost | 450,000 |
Pre Tax Income | 200,000 |
Working note:
Given,
The numbers of units sold is 21,666.67.
Calculated values (working note),
The selling price is $50.
Variable cost per unit is $20.
Calculation of total sales,
The total sales are $1,083,333.5.
Calculation of total variable cost,
Hence, the pretax income of Company A is $200,000.
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Chapter 18 Solutions
FIN & MANAGERIAL ACCT VOL 2 W/CONNECT
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