Chapter 5, Problem 5.16E

Glacial Company estimates that variable costs will be 62.5% of sales, and fixed costs will total $600,000. The selling price of the product is $4.

Instructions

(a) Prepare a CVP graph, assuming maximum sales of $3,200,000. (Note: Use $400,000 increments for sales and costs and 100,000 increments for units.)

(b) Compute the break-even point in (1) units and (2) dollars.

(c) Assuming actual sales are $2 million, compute the margin of safety in (1) dollars and (2) as a ratio.