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Requirement 1
To compute:
Break-even point for the year 2015
Requirement 1
![Check Mark](/static/check-mark.png)
Answer to Problem 4APSA
Solution:
Break-even point for the year 2015 = $ 1,250,000
Explanation of Solution
The break-even point in dollars will be calculated as under −
Given,
- Sales revenue = $ 1,000,000
- Contribution margin per unit = $ 200,000
- Fixed costs = $ 250,000
Now, the break-even point in units will be calculated as −
Thus, the break-even point in dollars has been calculated.
To compute:
Predicted break-even point for the year 2016
![Check Mark](/static/check-mark.png)
Answer to Problem 4APSA
Solution:
Predicted break-even point for the year 2016 = $
Explanation of Solution
The break-even point in dollars will be calculated as under −
Given,
- Sales revenue = $ 1,000,000
- Variable costs = $ 400,000 (50 % reduced due to installation of machine i.e. = $ 800,000 X 50 %)
- Fixed costs = $ 450,000 ($ 200,000 increased per year i.e. = $ 250,000 + $ 200,000)
The contribution margin ratio −
Now, the break-even point in units will be calculated as −
Thus, the predicted break-even point in dollars has been calculated.
Requirement 3
To prepare:
A
Requirement 3
![Check Mark](/static/check-mark.png)
Answer to Problem 4APSA
Solution:
Astro. Co | |||
Forecasted Contribution Margin Income statement | |||
For the year ended December 31, 2016 | |||
Sales | 1,000,000 | ||
Less: Variable costs | 400,000 | ||
Contribution Margin | 600,000 | ||
Less: Fixed Costs | 450,000 | ||
Net Operating Income | 150,000 |
Explanation of Solution
The contribution income statement is prepared as under −
Given,
- Sales price revenue = $ 1,000,000
- Variable costs = $ 400,000 (50 % reduced due to installation of machine i.e. = $ 800,000 X 50 %)
- Fixed costs = $ 450,000 ($ 200,000 increased per year i.e. = $ 250,000 + $ 200,000)
- The contribution margin is calculated as under −
- Fixed costs given as = $ 450,000
- The net operating income will be calculated as under −
The expected net operating income for Astro Co. for the year ended December 31, 2016 = $ 150,000.
Thus, the forecasted contribution margin income statement for Astro Co. for the year ended on December 31, 2016 has been prepared.
Requirement 4
To compute:
- The amount of sales needed to produce the target income of $ 200,000
- The number of units to be sold to produce the target income of $ 200,000
Requirement 4
![Check Mark](/static/check-mark.png)
Answer to Problem 4APSA
Solution:
- The amount of sales needed to produce the target income of $ 200,000 = $ 1,083,333
- The number of units to be sold to produce the target income of $ 200,000 = 21,667 units
Explanation of Solution
- The target sales will be calculated as under −
- Contribution margin ratio = 60%
- Fixed costs = $ 450,000
- Desired profit = $ 200,000
The amount of sales to earn a target pre-tax income of $ 200,000 = $ 1,083,333.
- 2. The number of units to be sold to earn a target profit of $ 200,000 will be calculated as under −
- Sales price per unit = $ 50 (i.e. $ 1,000,000 divided by 20,000 units)
- Sales = $ 1,083,333
Thus, the amount of sales and the number of sales units needed to produce the target income of $ 200,000 have been calculated.
Requirement 5
To prepare:
A forecasted contribution margin income statement that shows the results at the sales level = $ 1,083,333.
Requirement 5
![Check Mark](/static/check-mark.png)
Answer to Problem 4APSA
Solution:
The
Astro. Co | |||
Forecasted Contribution Margin Income statement | |||
For the year ended December 31, 2016 | |||
Sales | 1,083,333 | ||
Less: Variable costs | 433,333 | ||
Contribution Margin | 650,000 | ||
Less: Fixed Costs | 450,000 | ||
Net Operating Income | 200,000 |
Explanation of Solution
The forecasted contribution margin income statement has been prepared as under −
- Sales revenue = $ 1,083,333
- Variable costs will be calculated as −
- Contribution ratio = 60 %
- The contribution margin is calculated as under −
- Fixed costs given as = $ 450,000
- The net operating income will be calculated as under −
The expected net operating income for Astro Co. for the year ended December 31, 2016 = $ 200,000.
Thus, the forecasted contribution margin income statement that shows the results at the sales level = $ 1,083,333 has been calculated.
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Chapter 21 Solutions
Connect 2-Semester Access Card for Fundamental Accounting Principles
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- False Value Hardware began 2013 with a credit balance of $31,900 in the allowance for sales returns account. Sales and cash collections from customers during the year were $680,000 and $640,000, respectively. False Value estimates that 5% of all sales will be returned. During 2013, customers returned merchandise for credit of $23,000 to their accounts. False Value's 2013 income statement would report net sales of: a. $657,000. b. $646,000. c. $648,100. d. $671,100.arrow_forwardCapitalisation methodarrow_forwardSubject: financial accountingarrow_forward
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