Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The...
Evergreen Corporation manufactures circuit boards and is in the
process of preparing next year's budget. The pro forma income
statement for the current year is presented below.
| Sales | $ | 3,720,000 | |||
| Cost of sales: | |||||
| Direct material | $ | 522,000 | |||
| Direct labor | 360,000 | ||||
| Variable overhead | 286,000 | ||||
| Fixed overhead | 710,000 | 1,878,000 | |||
| Gross profit | $ | 1,842,000 | |||
| Selling and General & Admin. Exp. | |||||
| Variable | 772,000 | ||||
| Fixed | 272,000 | 1,044,000 | |||
| Operating income | $ | 798,000 | |||
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 $56,000 increase in fixed costs.
The break-even point for next year would be?
Homework Answers
Calculate following
| Sales (3720000*95%) | 3534000 | |
| Less; Variable cost | ||
| direct material (522000*1.1) | 574200 | |
| Direct labor (360000*1.1) | 396000 | |
| Variable overhead (286000*1.1) | 314600 | |
| Variable selling and administrative (772000*1.1) | 849200 | |
| Total variable cost | 2134000 | |
| Contribution margin | 1400000 | |
| Fixed cost | ||
| Fixed manufacturing overhead (710000+272000-56000) | 926000 | |
| Operating income | 474000 | |
Contribution margin ratio = 1400000/3534000 = 39.62%
Break even sales = Fixed cost/Contribution margin ratio = 926000/.3962 = $2337203
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Evergreen Corporation manufactures circuit boards and is in the
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