Break-Even Sales and Cost-Volume-Profit Chart Last year, Gelbin Inc. had sales o

Question

Break-Even Sales and Cost-Volume-Profit Chart Last year, Gelbin Inc. had sales of $250,900, based on a unit selling price of $130. The variable cost per unit was $100, and fixed costs were $40,200. The maximum sales within Gelbin's relevant range are 2,400 units. Gelbin is considering a proposal to spend an additional $12,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity. Required: 1. Construct a cost-volume-profit chart on your own paper, indicating the break-even sales for last year. In your computations, do not round the contribution margin percentage. Break-even sales (dollars) Break-even sales (units) 2. Using the cost-volume-profit chart prepared in part (1), determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realized during the year. In your computations, do not round the contribution margin percentage. Income from operations Maximum income from operations 3. Construct a cost-volume-profit chart (on your own paper) indicating the break-even sales for the current year, assuming that a noncancelable contract is signed for the additional billboard advertising. No changes are expected in the unit selling price or other costs. In your computations, do not round the contribution margin percentage. Dollars Units 4. Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 1,930 units and (b) the maximum income from operations that could be realized during the year. In your computations, do not round the contribution margin percentage. Income from operations at 1,930 units Maximum income from operations

Explanation / Answer

Solition

1.Break Even Point (Dollars) =Fixed Costs/Profit Volume ratio

=40200/.23=174782.60

Break Even Point (Qtty)=Fixed Costs/Contibution Per Unit

=40200/30=1340 unit

2.Income From operation =17700

Maximation of Profit: 19800

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