Chapter 21, Problem 5BPSB

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.

To determine:

1. Compute the break-even point in dollar sales for each product.

2. Prepare forecasted financial results for next year following the format of the contribution margin income statement if the sales of each product decline to 33,000 units.

3. Prepare forecasted financial results for next year following the format of the contribution margin income statement if the sales of each product increase to 64,000 units.

4.

If sales greatly increase, which product would experience a greater increase in profit? Explain.

5. Describe some factors that might have created the different cost structures for these two products.