The income statement for Bradford Machine Company for 2012 appears below. BRADFO
ID: 2461004 • Letter: T
Question
The income statement for Bradford Machine Company for 2012 appears below.
BRADFORD MACHINE COMPANY
Income Statement
For the Year Ended December 31, 2012
Sales (40,000 units)
$1,000,000
Variable expenses
700,000
Contribution margin
300,000
Fixed expenses
360,000
Net income (loss)
$ (60,000)
Instructions
Answer the following independent questions: (Use comma's but NO dollar signs)
1.
What was the company's break-even point in sales dollars in 2012?
2.
How many additional units would the company have had to sell in 2013 in order to earn net income of $45,000?
3.
If the company is able to reduce variable costs by $2.50 per unit in 2013 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $45,000?
BRADFORD MACHINE COMPANY
Income Statement
For the Year Ended December 31, 2012
Explanation / Answer
1)CM ratio = contribution /sales = 300,000 / 1,000,000 = .30 or 30%
BEP ($) =Fixed cost /cm ratio
= 360000 / .30
= $ 1,200,000
2) contribution per unit = 300000 /40000 = $ 7.5 per unit
Target sales = (fixed cost + target income) /contribution per unit
= (360000 + 45000) /7.5
= 405000 /7.5
= 54000 units
3) Contribution per unit will increase by 2.5 = 2.5+ 7.5 = 10
Target unit sales = (360000 +45000)/10
= 405000/10
= 40500 units
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