Question

and tribution This year Bertrand Company sold 40,000 units of its only product for $25 per unit Manufacturing and selling the product required $200,000 of fixed manufacturing costs and $325.000 of fixed selling and administrative costs, Tes per unit variable costs follow. $0.00 Material Direct labor (paid on the basis of completed units). Variable overhead costs Variable selling and administrative, costs Next year the company will use new material, which will reduce material costs by 50% and direct labor costs by 60% and will not affect product quality or marketability. Management is considering an in- crease in the unit sales price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 45,000 units. Two plans are being considered. Under plan 1, the company will keep the price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will in- crease price by 20%. This plan will decrease unit sales volume by 10%. Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same. Required 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. 2. Prepare a forecasted contribution margin income statement with two columns showing the expected results of plan 1 and plan 2. The statements should report sales, total variable costs, contribution mar- gin, total fixed costs, income before taxes, income taxes (30% rate), and net income.

Answer 1

Answer As per the question it asked about break even point so what is brear even point ? - It is a point at which gains equal losses s oria - It means no gain, no loss. - cost expenses are equal to sevenue The formulae as as follows de lixed costs Break even point [In dollars] contribution m & ratio. Now lets margan alculate the contribution ratio. under both plans: A particulars plan A Plan B selling Price door Plan A. There was no change Plan B: increses by 20% $25 X (100+20%) $25 $25 & 830 selling Price (I) less variable cost material decreased by 50% @ 8 x (100-50%)

labor decreased by 60% @ 95 x (400-60) variable overhead $0:50 $0.50 variable selling Talal variable (11) 97.90 $ 7.50 contribution per I = I - I unit $17.50 $99.50 75% contribution maro - ratio 70% - 11/2 x 100] novel 17.50 x 100 125 @ 08:50 x 100 Now a) plan 2 fixed cost Break on even point (dollacs) CMR no& 200,000+ $325000 (from data) onda 70% 2020 orsal from a i rol i table) : $ 525 000 70%.

et $ 450,000 plan 2 - $2000, oot $325000 [ from data) 75°C [from table A $525000 Cut 95% -) $ 700,000 Thus $750,000 & $700,000 required to break even in sales are the dollars. 72 in this question, it asked to prepare fore casted contribution margin income statement. What is forcasted income statemente - - it is a estimated income statement income statement is one of 3 finan. cial statements, the others are balan u Sheet and cash How statement. co It measuros company finanaal perform. ance for every year. Total expenses are subtracted from total revenues -

to veriod. - It shows & net income floss net income floss Forecasted Income statement. Bertrand company Forcasted contribution margin income statement Particulars Plan I plan B sales Creter I of A table] $25* uoooo Ploon Plan-B $ 1,000,000 $30 X 360oo $ 1,080,000 less Total variable cost [refer II of A talle] Plan. A Plan. B $300,000 $7.50 X U0000 & 7.50x36000 $ 270,000 contribution margic 700 000 810ooo - hixed cost [200ooo + 321 525000 525000 The income before taxe 175000 285000 taxes @ 30% on income $52500 $85,500 122500 199500 Thus the net income is 122500 and 199500.