Chapter 21, Problem P21.63BPGB

To determine

Break-even point, Target profit: The break-even point can be defined as the point where the total sales revenue is equal to the total costs involved. The break-even point is calculated as –

$\text{Break even point }\left(\text{in Units}\right)=\frac{\text{Fixed Costs}}{\text{Contribution margin per unit}}$

$\text{Break even point }\left(\text{in dollars}\right)=\frac{\text{Fixed Costs}}{\text{Contribution margin ratio}}$

Target profit:

Target profit can be defined as the profit which a firm aims to earn. We need to calculate target sales to earn target profit. This can be calculated as under –

$\text{Target Sales to earn target profit}=\frac{\text{Fixed Costs}+\text{Target profit}}{\text{Contribution margin per unit}}$

Requirement 1

To determine:

Break-even point (in number of flags)

To determine

Requirement 2:

To determine:

Target sales to earn operating income of $ 32,500

To determine

Requirement 3:

To prepare:

Income statement using contribution approach for sales of 73,000 flags

To determine

Requirement 4:

To determine:

The new break-even point after increase in fixed costs by 23 % and variable costs by $ 0.60

Per flag