Presented below income statement for Chauncey\'s farm for the month of April sal

Question

Presented below income statement for Chauncey's farm for the month of April

sales                             110,000    Operating expenses 38,000           Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin

Cost of goods sold         57,000      operating income    15,000           ratio is 30 percent.

a rearrange the above statement to the contribution margin format, b if sales increase by 20 percent, what wil the firms' operating income? c. Calculate the amount of revenue required for Chauncey's firm to break even

                                                            

Explanation / Answer

Step 1 - If contribution margin is 30% then variable cost would be 70% of sales

hence variable cost is 110000*70%=77000

Step 2 - Total cost = 38000+57000 = 95000

Out of total cost 95000, 77000 is variable cost hence fixed cost would be 95000-77000= 18000

Step 3 -

B)

C)

For break even point sales - variables cost = fixed cost

Sales - 77000=18000

Sales = 18000+77000

= 95000

$95000 is required as a sales for break even

Sales (A)       1,10,000 Variable cost (B)           77,000 Contribution (C ) = (A) - (B)           33,000 Fixed cost (D) 18000 operating income (C ) - (D)           15,000

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