Break-Even Sales and Cost-Volume-Profit Chart For the coming year, Sorkin Compan

Question

Break-Even Sales and Cost-Volume-Profit Chart

For the coming year, Sorkin Company anticipates a unit selling price of $78, a unit variable cost of $39, and fixed costs of $257,400.

Required:

1. Compute the anticipated break-even sales in units.
units

2. Compute the sales (units) required to realize income from operations of $132,600.
units

3. Construct a cost-volume-profit chart, assuming maximum sales of 13,200 units within the relevant range. From your chart, indicate whether each of the following sales levels would produce a profit, a loss, or break-even.

$717,600
$647,400
$514,800
$390,000
$312,000

4. Determine the probable income (loss) from operations if sales total 10,600 units. If required, use the minus sign to indicate a loss.
$

Explanation / Answer

Break-even point is the level of sales that a company must achieve to reach at no profit no loss situation,

The formula to calculate BEP (in units) = Total Fixed cost/(selling price per unit - variable cost per unit)

Where,

Fixed cost = $257400

Selling price = 78 per unit

Variable cost = 39 per unit

Let's put all the values in the formula to get the BEP in units,

BEP = 257400/ (78 - 39)

BEP = 257400/39

BEP = 6600 Units

So to reach the BEP company must sell 6600 units

Sale required to achieve desired profit = (Fixed cost + Desired profit)/ (Sales price per unit - Variable cost per unit)

Where,

Fixed cost = $257400

Selling price = $78

Variable cost = $39

Desired profit = $132600

Let's put all the values in the formula,

Required sale = (257400 + 132600)/ (78 - 39)

                             = 390000/ 39

                             = 10000

So to reach desired profit of $132600 required units that must be sold is 10000 units

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