The income statement for Bradford Machine Company for 2012 appears below. BRADFO

Question

The income statement for Bradford Machine Company for 2012 appears below. BRADFORD MACHINE COMPANY Income Statement For the Year Ended December 31, 2012 Sales (40,000 units) $1,000,000 Variable expenses 700,000 Contribution margin 300,000 Fixed expenses 360,000 Net income (loss) $ (60,000) Instructions Answer the following independent questions: (Use comma's but NO dollar signs) 1. What was the company's break-even point in sales dollars in 2012? 2. How many additional units would the company have had to sell in 2013 in order to earn net income of $45,000? 3. If the company is able to reduce variable costs by $2.50 per unit in 2013 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $45,000?

Explanation / Answer

Ans) BRADFORD MACHINE COMPANY Income Statement For the Year Ended December 31, 2012 Particulars Units Amount Per unit Sales 40000                      1,000,000               25 Variable Expenses -700000 -17.5            2.50 -15 Contribution                          300,000           7.50 Fixed Expenses -360000 Loss                          (60,000) 1. What was the company's break-even point in sales dollars in 2012? Ans) P/V ratio = 300000/1000000 = 30% Break even Point in Sales = Fixed Cost / P V Ratio = 360,000/0.3 = 360,000/0.3 =                      1,200,000 2. How many additional units would the company have had to sell in 2013 in order to earn net income of $45,000? Sales = (Fixed Cost + Desired Profit )/ P/V Ratio = (360000+45000)/0.3 =                      1,350,000 Company has to sale 1350000 rupess 3. If the company is able to reduce variable costs by $2.50 per unit in 2013 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $45,000? Ans) Particulars Amount Selling Price of the unit 25 Less Variable Cost -15 Contribution 10 P/V Ratio = Contribution Sales P/V Ratio = 10 25 P/V Ratio 0.4 Required amount of Sales = Fixed + Desired Profit / P/V Ratio = (360000+45000)/0.4 =                      1,012,500

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