Question

Carbex, Inc. produces Cutlery sets out of high-quality wood and steel. The company makes a Standard set and a Deluxe set and sells them to retail department stores throughout the country. The Standard set sells for $90, and the Deluxe set sells for $105. The variable expenses associated with each set are given below. Carbex, Inc. Income Statement For May Standard Deluxe Amount * Amount % Total % Amount Variable production costs Sales comissions (S0% of sales price) Standard $ 30.00 $ 27.00 Deluxe $ 45.00 $31.50 Variable expenses The company's fixed expenses each month are: Advertising Depreciation Total variable expenses Mary Parsons, the financial vice president, watches sales commissions carefully and has noted that they have risen steadily over the last year. For this reason, she was shocked to find that even though sales have increased, profits for the current month-May-are down substantially from April, Sales, in sets, for the last two months are given below 0.0% 0.0 % 0 0 0.0 % 0.0 % $ 0 0.0 % $ 0 $ Total Fixed expenses: Standard 5.500 2.500 Deluxe 5 8500 Required: 1-a. Prepare contribution format income statements for April 1-b. Prepare contribution format income statements for May 3-a. Compute the break-even point in dollar sales for April 3-b. Would the break-even point in May be higher or lower than the break-even point in April? Total foed expenses Reg 1A Reg 1B Reg 3A Reg 3B Compute the break-even point in dollar sales for April. (Round intermediate percentage calculations to 1 decimal place and final answer to the nearest whole dollar.) Break-even point in dollar sales Carbex, Inc. Income Statement For April Standard Deluxe Amount % Amount % Total Amount % Reg 1A Reg 1B Reg 3А Reg 38 Sales Would the break-even point in May be higher or lower than the break-even point in April? Variable expenses Production Sales commission Higher Lower 0.0 % 0.0 % 0.0 % 0.0% 0 0 0.0 0.0 Total variable expenses Contribution margin Fored expenses: Advertising Depreciation Administrative Total fixed expenses

Answer 1

Carbex Inc.
Income Statement for April
	Standard		Deluxe		Total
	Amount	%	Amount	%	Amount	%
Sales	$                         4,95,000	100.0%	$                 3,67,500	100.0%	$                         8,62,500	100.0%
Variable expenses:
Production	$                         1,65,000	33.3%	$                 1,57,500	42.9%	$                         3,22,500	37.4%
Sales Commission	$                         1,48,500	30.0%	$                 1,10,250	30.0%	$                         2,58,750	30.0%
Total Variable expenses	$                         3,13,500	63.3%	$                 2,67,750	72.9%	$                         5,81,250	67.4%
Contribution Margin	$                         1,81,500	36.7%	$                    99,750	27.1%	$                         2,81,250	32.6%
Fixed expenses:
Advertising					$                         1,20,000	13.9%
Depreciation					$                            28,200	3.3%
Administrative					$                            70,500	8.2%
Total Fixed expenses					$                         2,18,700	25.4%
Net Income					$                            62,550	7.3%
Carbex Inc.
Income Statement for May
	Standard		Deluxe		Total
	Amount	%	Amount	%	Amount	%
Sales	$                         2,25,000	100.0%	$                 6,82,500	100.0%	$                         9,07,500	100.0%
Variable expenses:
Production	$                            75,000	33.3%	$                 2,92,500	42.9%	$                         3,67,500	40.5%
Sales Commission	$                            67,500	30.0%	$                 2,04,750	30.0%	$                         2,72,250	30.0%
Total Variable expenses	$                         1,42,500	63.3%	$                 4,97,250	72.9%	$                         6,39,750	70.5%
Contribution Margin	$                            82,500	36.7%	$                 1,85,250	27.1%	$                         2,67,750	29.5%
Fixed expenses:
Advertising					$                         1,20,000	13.2%
Depreciation					$                            28,200	3.1%
Administrative					$                            70,500	7.8%
Total Fixed expenses					$                         2,18,700	24.1%
Net Income					$                            49,050	5.4%
Break-even Point for April(in $) =Total Fixed Cost / Contribution margin ratio
Break-even Point for April(in $) =$218,700 / 32.6% =$670,859
In May the Break-even Point willl be Higher as the Contribution margin ratio is lower as compared to April.