
Break-even point in dollar sales:
It is the value of sales in dollar where a company is neither making profit nor incurring any loss.
Contribution Margin Income Statement:
A contribution margin income statement separates the variable cost and fixed cost. The variable costs are deducted first from the sales revenue to arrive at contribution margin, from which fixed costs are deducted to determine the net income or loss.
Target Profit Analysis:
It is an analysis of how much unit sales or dollar sales value must be attain to realize the target profit estimated by the company.
To determine:
1. Computation of break-even point in dollar sales for year 2017.
2. Compute the predicted break-even point in dollar sales for year 2018 assuming the machine is installed and no change occurs in the unit selling price.
3. Assuming that the unit selling price and the number of units sold will not change, and no income taxes will be due, prepare a
4. Compute the sales level required in both dollars and units to earn $200,000 of target pretax income in 2018 with the machine installed and no change in unit sales price.
5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4.

Answer to Problem 4BPSB
Solution:
1. The break-even point in dollar sales for the year 2017 is $1,000,000.
2. The predicted break-even point in dollar sales for year 2018 assuming the machine is installed is $583,333.
3. The
4.
Required Sales in dollars and units | |
In dollars | $916,667 |
In units | $24,444.44 units |
5. The forecasted contribution margin income statement for 2018 shows a total net income of $200,000.
Explanation of Solution
Explanation:
1. Computation of Break-even point in dollar sales
2. Computation of predicted break-even point in dollar sales for year 2018.
3. Forecasted Contribution Margin Income Statement for 2018
RIVERA COMPANY Contribution Margin Income Statement For Year Ended December 31, 2018 |
|
Sales Revenue (20,000 units X $37.5 per unit) | $750,000 |
Less: Variable Cost (20,000 units X $15 per unit) | $300,000 |
Contribution Margin | $450,000 |
Less: Fixed Cost ($200,000 + $150,000) | $350,000 |
Net Income | $100,000 |
4. Computation of required sales in dollars and units to earn $200,000 of target pretax in 2018.
5.
RIVERA COMPANY Contribution Margin Income Statement For Year Ended December 31, 2018 |
|
Sales Revenue (24,444.44 units X $37.5 per unit) | $916,667 |
Less: Variable Cost (24,444.44 units X $15 per unit) | $366,667 |
Contribution Margin | $550,000 |
Less: Fixed Cost ($200,000 + $150,000) | $350,000 |
Net Income | $200,000 |
Conclusion:
The Rivera Company is required to sell 24,444.44 in units and $916,667 in dollar sales to attain the target profit of $200,000.
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Chapter 21 Solutions
Fundamental Accounting Principles
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