Chapter 22, Problem 5PSA

(a)

To determine

Break-Even Point: The break-even point is a point where the total cost incurred is same as the total revenue earned. At the break-even point, the profit will be zero. The break-even point is the point in the business where there is no loss and no gain.

Margin of Safety Ratio: The margin of safety is the difference between the actual value of the sales and the break-even sales value. When this amount is compared with the expected value of sales and the value expressed in percentage is the margin of safety ratio.

Cost-Volume-Profit (CVP) Income Statement: The cost-volume-profit income statement refers to that income statement which highlights the cost behavior as a variable cost and fixed costs. It also shows the contribution margin of the company. This statement is for the internal use in the company. The format of this statement depends upon the need of the business.

To determine: The current break-even point and the break-even point if the given idea is used.

(b)

To determine

The margin of safety ratio for current operations and after the changes.

(c)

To determine

To prepare: A CVP income statement for the current operations and for after the changes.