Chapter 21, Problem 6BPSB

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.

1. Compute the break-even point in dollar sales under the (a) existing business strategy and (b) new strategy that alters both unit selling price and variable costs.

2. Prepare a forecasted contribution margin income statement with two columns showing the expected results of (a) the existing strategy and (b) changing to the new strategy.