Chapter 2, Problem 2.18E

1.

To determine

Introduction:

Break-even point:

Break-even point is defined as the volume of production where the total cost is equal to the total sales revenue generated thereby resulting in a no profit and no loss situation. At break-even point, the contribution earned is sufficient to cover the costs whereas if the contribution is less than the break-even point then it is a loss and if it is more, then it is a profit.

To calculate: the break-even point in unit sales and dollar sales.

2.

To determine

Introduction:

Break-even point:

Break-even point is defined as the volume of production where the total cost is equal to the total sales revenue generated thereby resulting in a no profit and no loss situation. At break-even point, the contribution earned is sufficient to cover the costs whereas if the contribution is less than the break-even point then it is a loss and if it is more, then it is a profit.

To determine the total contribution margin at break-even point without resorting to computations.

3.

To determine

Introduction:

Break-even point:

Break-even point is defined as the volume of production where the total cost is equal to the total sales revenue generated thereby resulting in a no profit and no loss situation. At break-even point, the contribution earned is sufficient to cover the costs whereas if the contribution is less than the break-even point then it is a loss and if it is more, then it is a profit.

To calculate the number of units to be sold every month to attain a target profit of $ 90000 and verify the same by preparing a contribution margin statement at the target sales level.

4.

To determine

Introduction:

Break-even point:

Break-even point is defined as the volume of production where the total cost is equal to the total sales revenue generated thereby resulting in a no profit and no loss situation. At break-even point, the contribution earned is sufficient to cover the costs whereas if the contribution is less than the break-even point then it is a loss and if it is more, then it is a profit.

To prepare company’s margin of safety in both dollar and percentage terms.

5.

To determine

Introduction:

Break-even point:

Break-even point is defined as the volume of production where the total cost is equal to the total sales revenue generated thereby resulting in a no profit and no loss situation. At break-even point, the contribution earned is sufficient to cover the costs whereas if the contribution is less than the break-even point then it is a loss and if it is more, then it is a profit.

To prepare company’s CM ratio and if sales increases by $ 50000 per month and there is no change in fixed expenses then what will be the increase in net operating income. .