Concept introduction:
Break-even point (BEP):
Break-Even point or BEP is the level of output at which the total sales is equal to the total cost. The BEP means there are no operating income and no operating losses. It is a very important management tool as the management use this point as the minimum sales required for business survival.
Requirement 1:
Calculate the company’s break-even point in units.
Concept introduction:
Variable costing:
The method of costing where only variable costs are charged to the products is called as variable costing. The fixed overheads are charged to the units which are sold.
Requirement 2:
Calculate the product cost and prepare the income statement for Year 1, Year 2 and Year 3.
Concept introduction:
Absorption costing:
The method of costing where both fixed and variable costs are charged to the products Absorption costing absorbs the costs which are directly related to the product. The fixed overheads are charged to all units manufactured regardless of the output.
Requirement 3:
Calculate the product cost and prepare the income statement for Year 1, Year 2 and Year 3.
Concept introduction:
Cost-volume-profit analysis:
This analysis focuses on the cost and volume of the product in order to calculate the operating profit. This analysis calculates the change in the operating product by the change in the cost and volume of the product.
Requirement 4:
Compare the net operating income calculated in requirement 2 and 3 with the break-even point.
Want to see the full answer?
Check out a sample textbook solution
Chapter 4 Solutions
MANAGERIAL ACCOUNTING(LL)-W/CONNECT >C<
- Nonearrow_forwardFor the current year ended March 31, Cosgrove Company expects fixed costs of $579,000, a unit variable cost of $68, and a unit selling price of $89. a. Compute the anticipated break-even sales (units). b. Compute the sales (units) required to realize an operating income of $134,000. (Round your answer to nearest units)arrow_forwardL.L. Bean operates two factories that produce its popular Bean boots (also known as "duck boots") in its home state of Maine. Since L.L. Bean prides itself on manufacturing its boots in Maine and not outsourcing, backorders for its boots can be high. In 2014, L.L. Bean sold about 450,000 pairs of the boots. At one point during 2014, it had a backorder level of about 100,000 pairs of boots. L.L. Bean can manufacture about 2,200 pairs of its duck boots each day with its factories running 24/7. In 2015, L.L. Bean expects to sell more than 500,000 pairs of its duck boots. As of late November 2015, the backorder quantity for Bean Boots was estimated to be about 50,000 pairs.arrow_forward
- correct answer pleasearrow_forward1. Assume there is a 7% sales tax rate in Ohio, where the customer who ordered the boots is located. The sales tax on the order would be $7.63, which L.L. Bean adds to the invoice total. Is the $7.63 added to L.L. Bean's sales revenue? Why or why not?arrow_forwardWhat are its after tax earnings? Accountingarrow_forward
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education