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XYZ Company Projected Income Statement For the Current Year Ending December 31 S

ID: 2330287 • Letter: X

Question

XYZ Company

Projected Income Statement

For the Current Year Ending December 31

Sales (13,000 units)

$325,000

Less variable costs:

Variable manufacturing costs

$78,000

Variable selling costs

45,500

Total variable costs

    123.500

Contribution margin

$201,500

Less fixed costs:

Fixed manufacturing costs

$91,000

Fixed selling and administrative costs

40,000

Total fixed costs

  131,000

Operating income

$ 70,500

Required:

A.

Determine the break-even point in sales dollars.

B.

The sales manager believed the company could increase sales by 1,200 units if advertising expenditures were increased by $10,000. By how much will operating income increase or decrease if the advertising is increased as suggested?

C.

What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,200 units (income would not change)?

XYZ Company

Projected Income Statement

For the Current Year Ending December 31

Sales (13,000 units)

$325,000

Less variable costs:

Variable manufacturing costs

$78,000

Variable selling costs

45,500

Total variable costs

    123.500

Contribution margin

$201,500

Less fixed costs:

Fixed manufacturing costs

$91,000

Fixed selling and administrative costs

40,000

Total fixed costs

  131,000

Operating income

$ 70,500

Explanation / Answer

a) Breakeven Point in $ :-

= Total Fixed Cost / PV Ratio

= $131000 / 0.62

= $211290

PV Ratio = Contribution / Sales

= $201500 / $325000

= 0.62

b)

c)

Maximum Amount of Advertising :-

= $149600 - $131000

= $18600

Particulars Amount($) Sales (14200 Units) 355000 Less : Variable Cost ($355000*38%) (134900) Contribution 220100 Less : Fixed Cost ($131000+$10000) (141000) Net Income 79100