Requirement 1
To compute:
Break-even point for the year 2015
Requirement 1

Answer to Problem 4BPSB
Solution:
Break-even point for the year 2015 = $ 1,000,000
Explanation of Solution
The break-even point in dollars will be calculated as under −
Given,
- Sales revenue = $ 750,000
- Contribution margin = $ 150,000
- Fixed costs = $ 200,000 First, we will calculate the contribution margin ratio −
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

Answer to Problem 4BPSB
Solution:
Predicted break-even point for the year 2016 = $ 583,333
Explanation of Solution
The break-even point in dollars will be calculated as under −
Given,
- Sales revenue = $ 750,000
- Variable costs = $ 300,000 (50 % reduced due to installation of machine i.e. = $ 600,000 X 50 %)
- Fixed costs = $ 350,000 ($ 150,000 increased per year i.e. = $ 200,000 + $ 150,000) The contribution margin will be calculated as −
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

Answer to Problem 4BPSB
Solution:
Rivera Co | ||
Forecasted Contribution Margin Income statement | ||
For the year ended December 31, 2016 | ||
Sales | 750,000 | |
Less: Variable costs | 300,000 | |
Contribution Margin | 450,000 | |
Less: Fixed Costs | 350,000 | |
Net Operating Income | 100,000 |
Explanation of Solution
The contribution income statement is prepared as under −
Given,
- Sales price revenue = $ 750,000
- Variable costs = $ 300,000 (50 % reduced due to installation of machine i.e. = $ 600,000 X 50 %)
- Fixed costs = $ 350,000 ($ 150,000 increased per year i.e. = $ 200,000 + $ 150,000)
- The contribution margin is calculated as under −
- Fixed costs given as = $ 350,000
- The net operating income will be calculated as under −
The expected net operating income for Rivera Co. for the year ended December 31, 2016 = $ 100,000.
Thus, the forecasted contribution margin income statement for Rivera 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

Answer to Problem 4BPSB
Solution:
- The amount of sales needed to produce the target income of $ 200,000 = $ 916,667
- The number of units to be sold to produce the target income of $ 200,000 = 24,445 units
Explanation of Solution
- The target sales will be calculated as under − Given,
- Contribution margin ratio = 60%
- Fixed costs = $ 350,000
- Desired profit = $ 200,000
- The number of units to be sold to earn a target profit of $ 200,000 will be calculated as under −
The amount of sales to earn a target pre-tax income of $ 200,000 = $ 916,667
- Sales price per unit = $ 37.50 (i.e. $ 750,000 divided by 20,000 units)
- Sales = $ 916,667
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 = $ 916,667.
Requirement 5

Answer to Problem 4BPSB
Solution:
The
Rivera Co. | ||
Forecasted Contribution Margin Income statement | ||
For the year ended December 31, 2016 | ||
Sales | 916,667 | |
Less: Variable costs | 366,667 | |
Contribution Margin | 550,000 | |
Less: Fixed Costs | 350,000 | |
Net Operating Income | 200,000 |
Explanation of Solution
The forecasted contribution margin income statement has been prepared as under −
- Sales revenue = $ 916,667
- Variable costs will be calculated as −
- Contribution ratio = 60 %
- The contribution margin is calculated as under −
- Fixed costs given as = $ 350,000
- The net operating income will be calculated as under −
The expected net operating income for Rivera 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 = $ 916,667 has been calculated.
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Chapter 21 Solutions
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