Question

Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year's plans call for a $200 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $270,000, up to a maximum capacity of 700,000 yards of rope. Forecasted variable costs are $140 per 100 yards of XT rope. Required 1. Estimate Product XT's break-even point in terms of sales units and (b) sales dollars. 2. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.

Answer 1

Answer is given below

Selling price Variable cost Contribution per unit Contribution margin % (Contribution/Sales)*100 $200.00 $140.00 $60.00 30% 1 a) Units* Break even point in Sales Units Fixed Cost Contribution per unit $270,000 $60 450,000 | Yards 4500*100 = 450,000 yards 1 b) $ Sales Break even point Sales dollars Fixed Cost Contribution margin % $270,000 $900,000 30% 2) Contribution Margin Income Statement $900,000 (4,500*$200) Variable Cost $630,000 (4,500*$140) Contribution $270,000 Fixed Cost $270,000 Net Profit