I need help from anyone!!! Break-Even Sales and Cost-Volume-Profit Chart Last ye
ID: 2425724 • Letter: I
Question
I need help from anyone!!!
Break-Even Sales and Cost-Volume-Profit Chart
Last year, O'Meara Co. had sales of $2,000,000, based on a unit selling price of $500. The variable cost per unit was $300, and fixed costs were $720,000. The maximum sales within O'Meara's relevant range are 5,000 units. O'Meara is considering a proposal to spend an additional $50,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity.
Instructions:
1. Construct a cost-volume-profit chart (on your own paper) indicating the break-even sales for last year. In your computations, round thecontribution margin ratio to the nearest percent.
Dollars: Select$1,000,000$1,500,000$1,800,000$2,000,000Item 1 Units: Select2,8003,6004,8006,000Item 2
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 realized during the year.
Income from operations: Select$55,000$75,000$80,000$100,000Item 3 Maximum income from operations: Select$220,000$255,000$280,000$320,000Item 4
3. Construct a cost-volume-profit chart 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 selling price or other costs. In your computations, round the contribution margin ratio to the nearest percent.
Dollars: Select$1,100,000$1,550,000$1,800,000$1,925,000Item 5 Units: Select2,8003,8504,3505,600Item 6
4. Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 4,000 units and (b) the maximum income from operations that could be realized during the year.
Income from operations at 4,000 units: Select$15,000$22,000$30,000$54,000Item 7
Maximum income from operations: Select$180,000$230,000$280,000$320,000
Explanation / Answer
O’Meara Co.
Particulars
Last Year
Units (Nos.)
Rate ($)
Amount($)
Sales
4,000
500
20,00,000
Less: Variable Cost
4,000
300
12,00,000
Contribution
-
200
8,00,000
Less: Fixed Cost
-
-
7,20,000
Income from Operations
-
-
80,000
Units (Nos.)
Rate ($)
Amount($)
1.
Break Even Sales
[Fixed Cost / Contribution per Unit]
3,600
500
18,00,000
Contribution Margin Ratio
(Contribution Per Unit/Sale Price Per Unit)
40%
2.
As derived above, the income from operations would be $80,000, which we got by reducing Fixed Cost of $ 720,000 from the Contribution of $800,000.
The Maximum income from operations, that could have been derived, had the Company utilized its full capacity of 5,000 Units:
Maximum Contribution = $ 200 per Unit x 5,000 Units = $ 10,00,000.
Less: Fixed Costs = ($720,000)
Maximum Income from Operations = $10,00,000 - $ 720,000 = $280,000
3.
Particulars
Current Year (5,000 Units)
Current Year (4,000 Units)
Units (Nos.)
Rate ($)
Amount($)
Units (Nos.)
Rate ($)
Amount($)
Sales
5,000
500
25,00,000
4,000
500
20,00,000
Less: Variable Cost
5,000
300
15,00,000
4,000
300
12,00,000
Contribution
-
200
10,00,000
-
200
8,00,000
Less: Fixed Cost
a. Bill Board Advertising
50,000
50,000
b. Other Fixed Costs
7,20,000
7,20,000
Income from Operations
-
-
2,30,000
-
-
30,000
Units (Nos.)
Rate ($)
Amount($)
Units (Nos.)
Rate ($)
Amount($)
Break Even Sales
[Fixed Cost / Contribution per Unit]
3,850
500
19,25,000
3,850
500
19,25,000
Contribution Margin Ratio
(Contribution Per Unit/Sale Price Per Unit)
40%
40%
O’Meara Co.
Particulars
Last Year
Units (Nos.)
Rate ($)
Amount($)
Sales
4,000
500
20,00,000
Less: Variable Cost
4,000
300
12,00,000
Contribution
-
200
8,00,000
Less: Fixed Cost
-
-
7,20,000
Income from Operations
-
-
80,000
Units (Nos.)
Rate ($)
Amount($)
1.
Break Even Sales
[Fixed Cost / Contribution per Unit]
3,600
500
18,00,000
Contribution Margin Ratio
(Contribution Per Unit/Sale Price Per Unit)
40%
2.
As derived above, the income from operations would be $80,000, which we got by reducing Fixed Cost of $ 720,000 from the Contribution of $800,000.
The Maximum income from operations, that could have been derived, had the Company utilized its full capacity of 5,000 Units:
Maximum Contribution = $ 200 per Unit x 5,000 Units = $ 10,00,000.
Less: Fixed Costs = ($720,000)
Maximum Income from Operations = $10,00,000 - $ 720,000 = $280,000
3.
Particulars
Current Year (5,000 Units)
Current Year (4,000 Units)
Units (Nos.)
Rate ($)
Amount($)
Units (Nos.)
Rate ($)
Amount($)
Sales
5,000
500
25,00,000
4,000
500
20,00,000
Less: Variable Cost
5,000
300
15,00,000
4,000
300
12,00,000
Contribution
-
200
10,00,000
-
200
8,00,000
Less: Fixed Cost
a. Bill Board Advertising
50,000
50,000
b. Other Fixed Costs
7,20,000
7,20,000
Income from Operations
-
-
2,30,000
-
-
30,000
Units (Nos.)
Rate ($)
Amount($)
Units (Nos.)
Rate ($)
Amount($)
Break Even Sales
[Fixed Cost / Contribution per Unit]
3,850
500
19,25,000
3,850
500
19,25,000
Contribution Margin Ratio
(Contribution Per Unit/Sale Price Per Unit)
40%
40%
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