PR 19-3B Break-even sales and cost-volume-profit chart For the coming year, Culp

Question

PR 19-3B Break-even sales and cost-volume-profit chart For the coming year, Culpeper Products Inc. anticipates a unit selling price of $150, a unit variable cost of $110, and fixed costs of $800,000. OBJ. 3,4 1. 20,000 units Instructions I. Compute the anticipated break-even sales (units 2. Compute the sales (units) required to realize income from operations of $300,000. 3. Construct a cost-volume-protit chart, assuming maximum sales of 40,000 units within the relevant range 4. Determine the probable income loss) from operations if sales total 32,000 units

Explanation / Answer

Answer 1.

Selling Price = $150
Unit Variable Cost = $110

Per unit Contribution Margin = Selling Price – Variable Cost per unit
Per unit Contribution Margin = $150 - $110
Per unit Contribution Margin = $40

Break Even Sales (in Units) = Fixed Cost / Per unit Contribution Margin
Break Even Sales (in Units) = $800,000 / $40
Break Even Sales (in Units) = 20,000 units

Answer 2.

Required unit sales = (Fixed Cost + Income from Operations) / Per unit Contribution Margin
Required unit sales = ($800,000 + $300,000) / $40
Required unit sales = $1,100,000 / $40
Required unit sales = 27,500

Answer 4.

Number of units sold = 32,000

Contribution Margin = Per unit Contribution Margin * Number of units sold
Contribution Margin = $40 * 32,000
Contribution Margin = $1,280,000

Income (loss) = Contribution Margin - Fixed Cost
Income (loss) = $1,280,000 - $800,000
Income (loss) = $480,000

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