Atlantic Bakers makes bread flour and has supplied the following data: Bags prod
ID: 2408571 • Letter: A
Question
Atlantic Bakers makes bread flour and has supplied the following data: Bags produced and sold Sales revenue Variable Manuf. Expense Fixed manufacturing expense Variable selling and adm. Expense Fixed selling & Administrative 340,000 4,352,000 1,972,000 730,000 782,000 512,000 Required (Do not use the tab key, only the space bar and return key) [a] Discuss thoroughly whether the company is operating AT breakeven, BELOW breakeven, or ABOVE breakeven. Show computations necessary to prove your response [b] Prepare a contribution margin format income statement AT breakeven. [c] Compute the Net Operating income if the sales revenue increases 15%Explanation / Answer
(a)
Income statament
Since there Atlantic Bakers is earning profit, hence it is operating above break-even level. At break-even level, there are no profits no losses to the firm.
(b) Contribution margin ratio = Contribution margin/Sales
= 1,598,000/4,352,000
= 36.72%
Hence, variable cost is 63.28% of sales (100% - 36.72%)
Break even sales = Fixed cost/ Contribution margin ratio
= 1,242,000/36.72%
= $3,382,512
Fall in sales from actual sales to break even sales = (4,352,000 - 3,382,537)/4,352,000
= 969,463/4,352,000
= 22.27%
Hence, variable cost will also fall by 22.27%
Income statament at break even level
(c) Income statament when sales revenue increases by 15%
Sales revenue 4,352,000 Less: Variable costs Variable manufacturing expense 1,972,000 Variable selling and administrative expense 782,000 Total variable costs 2,754,000 Contribution margin ( Sales - Variable costs ) 1,598,000 Less: Fixed costs Fixed manufacturing expense 730,000 Fixed selling and administrative expense 512,000 Total fixed costs 1,242,000 Net operating income (Contribution - Fixed cost) 356,000Related Questions
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