Breakeven point- Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows- B r e a k e v e n p o i n t i n s a l e s d o l l a r s = F i x e d c o s t s / C o n t r i b u t i o n m a r g i n r a t i o Requirement 1-: To compute: Break even points in sales dollars.

Question

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Answer 1

Question

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, factors are explained.

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Answer 2

Question

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, factors are explained.

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Answer 3

Question

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, factors are explained.

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Answer 4

Question

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, factors are explained.

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Answer 5

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, factors are explained.

Answer 6

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

Answer 7

Chapter 21, Problem 5BPSB

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Answer 8

Expert Solution

Answer to Problem 5BPSB

Product BB

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Product BB

Given,

Fixed costs = $100,000
Sales = $800,000
Contribution margin = $240,000

First we need to find contribution margin ratio-

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $240,000 / $800,000Contribution margin ratio = 30%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $100,000 30% Breakeven point in sales dollars =$333,334

Product TT

Given,

Fixed costs = $560,000
Sales = $800,000
Contribution margin = $700,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $700,000 / $800,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $560,000 87.5% Breakeven point in sales dollars =$640,000

Conclusion:

Thus, breakeven point in sales dollars is calculated.

Answer 13

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 14

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Answer 15

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	528,000	528,000
Variable costs	369,600	66,000
Contribution margin	158,400	462,000
Fixed costs	100,000	560,000
Income before tax	58,400	(98,000)
Tax on income (32%)	18,688	31,360
Net income / (Loss)	39,712	(66,640)

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $11.20Variable costs = 369,600

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $369,600Contribution margin = $158,400

Income before tax = Contribution margin – Fixed costsIncome before tax = $158,400 − $100,000Income before tax = $58,400

Tax on income = Income before tax * Tax rateTax on income = $58,400 * 32%Tax on income = $18,688

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $58,400 − $18,688Net income = $39,712

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 33,000 * $16Sales = $528,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 33,000 * $2.00Variable costs = $66,000

Contribution margin = Sales – Variable costsContribution margin = $528,000 − $66,000Contribution margin = $462,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $462,000 − $560,000Income before tax = ($98,000)

Tax on income = Income before tax * Tax rateTax on income = $98,000 * 32%Tax on income = $31,360

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($98,000) − $31,360Net income = ($66,640)

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 20

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 21

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Answer 22

Expert Solution

Answer to Problem 5BPSB

STAM Company
Forecasted contribution margin income statement

Particulars	Product BB	Product TT
Sales	1,024,000	1,024,000
Variable costs	716,800	128,000
Contribution margin	307,200	896,000
Fixed costs	100,000	560,000
Income before tax	207,200	336,000
Tax on income (32%)	66,304	107,520
Net income / (Loss)	140,896	228,480

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Product BB

Given, Fixed costs = $100,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 560,000 / 50,000Variable cost per unit = $11.20

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $11.20Variable costs = 716,800

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $716,800Contribution margin = $307,200

Income before tax = Contribution margin – Fixed costsIncome before tax = $307,200 − $100,000Income before tax = $207,200

Tax on income = Income before tax * Tax rateTax on income = $207,200 * 32%Tax on income = $66,304

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $207,200 − $66,304Net income = $140,896

Product TT

Given, Fixed costs = $560,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 800,000 / 50,000Selling price per unit = $16

Sales = No. of units * Selling per unitSales = 64,000 * $16Sales = $1,024,000

Variable cost per unit = 100,000 / 50,000Variable cost per unit = $2.00

Variable costs = No. of units * Variable cost per unitVariable costs = 64,000 * $2.00Variable costs = $128,000

Contribution margin = Sales – Variable costsContribution margin = $1,024,000 − $128,000Contribution margin = $896,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $896,000 − $560,000Income before tax = 336,000

Tax on income = Income before tax * Tax rateTax on income = $336,000 * 32%Tax on income = $107,520

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $336,000 − $107,520Net income = $228,480

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 27

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

Answer 28

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater increase in profit.

Answer 29

Expert Solution

Answer to Problem 5BPSB

When sales are increased, there will be improvement in income in case of product TT as it will earn more contribution margin per unit as compared to product BB. The operating leverage of given items will yield same result.

Answer 30

Expert Solution

Answer 31

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product TT will experience greater increase in profit.

Answer 34

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, factors are explained.

Answer 35

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 5-:

To Explain:

To explain the factors which might create different cost structures for two products.

Answer 36

Expert Solution

Answer to Problem 5BPSB

Following are the factors-

Sales representative works only on commission.
Labor arrangement paying workers for per unit manufactured.
Salary structure is not dependent on sales or production.
Assets utilized in manufacturing of BB are leased with rent dependent on the basis of assets utilized.