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

Question

Break-Even Sales and Cost-Volume-Profit Chart Last year, Hever Inc. had sales of $445,500, based on a unit selling price of $150. The variable cost per unit was $110, and fixed costs were $82,400. The maximum sales within Hever's relevant range are 3,700 units. Hever Inc. is considering a proposal to spend an additional $24,000 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 realizec 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 2,970 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 2,970 units

Explanation / Answer

Sales = 445,500

Selling price = 150

Units = 445,500 / 150 = 2,970

Variable cost per unit = 110

Fixed cost = 82,400

Contribution margin = Selling price - Variable costs = 150 - 110 = 40

1. Break-even sales (dollars) = Fixed costs / [(contribution margin per unit / selling price per unit)]

= 82,400 / [(40/150)] = 309,000

Break-even sales (units) = Fixed costs / Contribution margin per unit

= 82,400 / 40 = 2,060

----------

2.

Income from operations

Maximum Income from Operations

----------

3. Total fixed costs = 82,400 + 24,000 = 106,400

Break-even sales (dollars) = Fixed costs / [(contribution margin per unit / selling price per unit)]

= 106,400 / [(40/150)] = 399,000

Break-even sales (units) = Fixed costs / Contribution margin per unit

= 106,400 / 40 = 2,660

----------

4.

Income from operations at 2,970 units

Maximum Income from operations

Particulars Amount Sales 445,500 (-) Variable costs (2,970*110) (326,700) (-) Fixed costs (82,400) Income from operations 36,400

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.