Chapter 3, Problem 3.27P

1a.

To determine

To prepare: A contribution format income statement showing both dollar and percentage for each product and for the company as whole.

Introduction:

Break-even point:

Break-even point is the point at which there is no profit or no loss because at this point the total cost is equal to the total sales revenue generated by the company.The contribution earned by the company is sufficient to cover all its costs at the break-even point and if the contribution is lesser then it is loss and if it is higher, then it is profit.

To determine

1b.

To compute: The company’s break-even point in dollar sales and to calculate its margin of safety in dollars and percentage.

Introduction:

Break-even point:

Break-even point is the point at which there is no profit or no loss because at this point the total cost is equal to the total sales revenue generated by the company. The contribution earned by the company is sufficient to cover all its costs at the break-even point and if the contribution is lesser then it is loss and if it is higher, then it is profit.

2a.

To determine

To prepare:A revised contribution format income statement that includes Samoan delight assuming that the sales of the other two products does not change.

Introduction:

Break-even point:

Break-even point is the point at which there is no profit or no loss because at this point the total cost is equal to the total sales revenue generated by the company. The contribution earned by the company is sufficient to cover all its costs at the break-even point and if the contribution is lesser then it is loss and if it is higher, then it is profit.

2b.

To determine

To compute: The company’s revised break-even point in dollar sales and to calculate its revised margin of safety in dollars and percentage.

Introduction:

Break-even point:

Break-even point is the point at which there is no profit or no loss because at this point the total cost is equal to the total sales revenue generated by the company. The contribution earned by the company is sufficient to cover all its costs at the break-even point and if the contribution is lesser then it is loss and if it is higher, then it is profit.

3.

To determine

To explain: the reason to the president for a higher break-even point even though the contribution margin has increased with the addition of new product.

Introduction:

Break-even point:

Break-even point is the point at which there is no profit or no loss because at this point the total cost is equal to the total sales revenue generated by the company. The contribution earned by the company is sufficient to cover all its costs at the break-even point and if the contribution is lesser then it is loss and if it is higher, then it is profit.