Juill earh their target profit UuP calculations A Compute breakeven and project
ID: 2563698 • Letter: J
Question
Juill earh their target profit UuP calculations A Compute breakeven and project income (Learning Objectives 1 & 2) Grover's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $630,000 and a contribution margin of 70% of revenues. Requirements . Compute Grover's Steel Parts' monthly breakeven sales in dollars 2. Use the contribution margin ratio to project operating income (or loss) if revenues are $520,000 and if they are $1,010,000. 3. Do the results in Requirement 2 make sense given the breakeven sales you computed in Requirement 1? Explain,Explanation / Answer
Total fixed expense $ 630,000
CM ratio = 70%
Req1:
Break even sales in $ = Total fixed cost / CM ratio *100 = 630,000 /70 *100 = $900,000
Req 2:
Net operating income for sales of $ 520,000
Contribution @70% on $520,000 = $ 364,000
Less: Fixed cost $ 630,000
Net Operating loss ($ 266,000)
Net Operating income for sales of $ 1010,000
Contribution (1010,000@70% ) = $ 707,000
Less: Fixed cost $ 630,000
Net operating income $ 77,000
Req 3: Now, when break even sales as computed in (1) above $ 900,000
we can see that that there is a loss of $ 266,000 when sales is $520,000
This is due to fact, loss of sales below break even (900,000 -520,000) $ 380,000
Therefore, loss of contribution = 380,000 *70% = $ 266,000 (resulting in net operating loss)
When sales is $ 1010,000, there is increase in sales of $ 110,000 from break even
Resulting in increase in contribution by $ 77,000 ( 110,000*70%)
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