Question

Break-Even in Sales Revenue, Changes in Variables

Carmichael Corporation is in the process of preparing next year’s budget. The pro forma income statement for the current year is as follows:

Sales				$1,800,000
Cost of sales:
Direct materials		$250,000
Direct labor		180,000
Variable overhead		106,000
Fixed overhead		100,000		636,000
Gross profit				$1,164,000
Selling and administrative expenses:
Variable		$400,000
Fixed		350,000		750,000
Operating income				$414,000

Required:

1. What is the break-even sales revenue for Carmichael Corporation for the current year? In your calculations, carry the contribution margin ratio to two decimal places.
$

2. For the coming year, the management of Carmichael Corporation anticipates an 8 percent increase in variable costs and a $60,000 increase in fixed expenses. What is the break-even point in dollars for next year? In your computation, round the contribution margin ratio to four decimal places. Round your final answer to the nearest dollar. (CMA adapted)
$

Answer 1

1800000 sales revenue Variable expenses Direct Materails Direct Labor Variable Manufacturing Overheads Variable selling and administrative Expenses Total Variable cost Contribution Margin Fixed Expenses Fixed Overeheads Fixed Selling and Administrative Expenses total Fixed Cost 250000 180000 106000 400000 936000 864000 100000 350000 450000

48.00% 937500 CM Ratio = (1800000-936000)/1800000 “) Break Even sales Dollars = 450000/48% 2) Sales Revneue Less Varaible cost ( 936000*1.08) Contribution Margin Fixed Cost = 450000+60000 1800000 1010880 789120 510000 CM Ratio = (789120/1800000) Break Even Sales Dollars ( 510000/43.84% 43.84% 1163321 Anwers 1 Break Even Dollars | 2 Break Even Dollars (for commong Years ) 937500 1163321