Question

$3,800,000 Sales Cost of sales: Direct material Direct labor Variable overhead Fixed overhead Gross profit Selling and General & Admin. Exp. Variable Fixed Operating income $530,000 400,000 290,000 750,000 1,970,000 $1,830,000 780,000 280,000 1,060,000 $ 770,000 For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $60,000 increase in fixed costs. The break-even point for next year would be:

A. 2,865,721

B. 3,144,471

C. 2,805,721

D. 2,790,721

Answer 1

Sales = 3800000*95% =	$    36,10,000
Variable cost of production = 1220000*95%*110% =	$    13,42,000
Variable cost of selling and administration = 780000*95%*110% =	$      8,58,000
Total variable expense	$    22,00,000
Contribution margin	$    14,10,000
Contribution margin ratio = 1520000/3610000 =	39.058%
Fixed costs =750000+280000+60000 =	$    10,90,000
BEP sales = Fixed cost/CM ratio = 1090000/39.058% =	$    27,90,721
Answer: Option [D]