Question

Sused on the data given, would you recommend accepting the proposal? Explain. PR 21-3A Break-even sales and cost-volume-profit chart Obj. 3, 4 For the coming year, Cleves Company anticipates a unit selling price of $100, a unit variable cost of $60. and fixed costs of $480,000. Instructions 1. Compute the anticipated break-even sales (units). Answer 2. Compute the sales (units) required to realize a target profit of S240,000. 3. Constructa Cost-volume-profit chart, assuming maximum sales of 20,000 units within the relevant range 4. Determine the probable income (loss) from operations if sales total 16,000 units. PR 23-4A Break-even sales and cost-volume-profit chart

Answer 1

Anticipated Break-Even Sales

• BEP in Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
• BEP in Units = $480,000 / ($100 per unit - $60 per unit)
• BEP in Units = $480,000 / ($40 per unit)
• BEP in Units = 12,000 units

2. Target Profit of $2,40,000

• BEP in Units = (Fixed Costs + Target Profit) / (Selling Price per Unit - Variable Cost per Unit)
• BEP in Units = ($480,000 + $240,000) / ($100 per unit - $60 per unit)
• BEP in Units = ($720,000) / ($40 per unit)
• BEP in Units = 18,000 units

3. Cost-Volume-Profit Chart

We will construct our cvp chart using the following functions.

• y = 4,80,000
• y = 100(x)
• y = 60(x) + 480,000

-4000000 Sales -3000000 -2000000 -1000000 10000 20000 30000 40000 Number of Units

We see that break-even point is achieved at sales of $1,200,000 (12,000 units x $100 per unit). Using this and our chart for reference, we'll indicate whether each of the following sales levels would produce a profit, a loss, or break-even.

4. Income (Loss) from Sales of 16,000 Units

• Income (Loss) = $100(units) - $60(units) - $480,000
• Income (Loss) = $100(16,000) - $60(16,000) - $480,000
• Income (Loss) = $16,00,000 - $9,60,000 - $480,000
• Income (Loss) = $160,000