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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed. 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.

Question

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Answer 1

Question

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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.

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

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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Answer 2

Question

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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.

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

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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Answer 3

Question

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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.

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

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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Answer 4

Question

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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.

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

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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Answer 5

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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.

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

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.

Answer 6

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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.

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

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.

Answer 7

Chapter 21, Problem 4BPSB

To determine

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 forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed.

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 8

Expert Solution & Answer

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 forecasted contribution margin income statement for 2018 shows a total net income of $100,000.

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.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Explanation:

1. Computation of Break-even point in dollar sales

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 200, 000}{0.20} \\ = $1, 000, 000 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 150, 000}{$ 750, 000} \\ \begin{array}{l} = 20 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 600, 000 \\ = $ 150, 000 \end{array} \end{array} \end{array} \end{array}$

2. Computation of predicted break-even point in dollar sales for year 2018.

$\begin{array}{l} B r e a k - E v e n P o i n t (i n d o l l a r s) = \frac{F i x e d C o s t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000}{0.60} \\ = $583, 333.33 \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ \begin{array}{l} = 60 % \\ \begin{array}{l} C o n t r i b u t i o n M a r g i n = S a l e s - V a r i a b l e C o s t \\ = $ 750, 000 - $ 300, 000 \\ = $ 450, 000 \end{array} \end{array} \end{array} \end{array}$

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.

$\begin{array}{l} R e q u i r e d S a l e s i n d o l l a r s = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n M a r g i n R a t i o} \\ = \frac{$ 350, 000 + $ 200, 000}{0.60} \\ = $916, 667 \\ * C o n t r i b u t i o n m a r g i n r a t i o = \frac{C o n t r i b u t i o n m a r g i n}{S a l e s R e v e n u e} \\ = \frac{$ 450, 000}{$ 750, 000} \\ = 60 % \\ R e q u i r e d S a l e s i n u n i t = \frac{F i x e d C o s t + T a r g e t p r o f i t}{C o n t r i b u t i o n m a r g i n p e r u n i t} \\ = \frac{$ 350, 000 + $ 200, 000}{$ 22.50} \\ = 24,444 .44 u n i t s \\ \begin{array}{l} * C o n t r i b u t i o n m a r g i n p e r u n i t = S e l l i n g p r i c e p e r u n i t - V a r i a b l e c o s t p e r u n i t \\ = $ 37.50 - $ 15.00 \\ = $ 22.50 \end{array} \end{array}$

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

Answer 12

Conclusion

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.

Answer 13

Ch. 21 - Prob. 1DQ Ch. 21 - Prob. 2DQ Ch. 21 - When output volume increases, do fixed costs per...Ch. 21 - Prob. 4DQ Ch. 21 - Prob. 5DQ Ch. 21 - Describe the contribution margin ratio in...Ch. 21 - Prob. 7DQ Ch. 21 - Prob. 8DQ Ch. 21 - Prob. 9DQ Ch. 21 - Prob. 10DQ

Answer to Problem 4BPSB

Explanation of Solution

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