Question

Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows: Sales Operating expenses: Variable expenses Fixed expenses Total expenses $32,000,000 $20,800,000 5,600,000 26,400,000 $ 5,600,000 Operating profit Required: 1. Determine the breakeven point in sales dollars. 2. Determine the required sales in dollars to earn a before-tax profit of $6,440,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 3. What is the breakeven point in sales dollars if the variable expenses increases by 13%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) Breakeven point in sales dollars 2. Required sales in dollars 3. Breakeven point in sales dollars

Answer 1

Solution 1:

Contribution margin = Sales - variable expenses = $32,000,000 - $20,800,000 = $11,200,000

Contribution Margin Ratio = Contribution margin / Sales = $11,200,000/ $32,000,000 = 35%

Break even point in sales dollars = Fixed Expenses / Contribution Margin Ratio = $5,600,000 / 35% = $16,000,000

Solution 2:

Required Sales in dollars = (Fixed expenses + target profit) / Contribution Margin Ratio = ($5,600,000 + $6,440,000) / 35%

= $34,400,000

Solution 3:

New Variable expenses = $20,800,000* 113% = $23,504,000

New Contribution margin ratio = ($32,000,000 - $23,504,000) / $32,000,000 = 26.55%

Break even point in sales dollars = Fixed Expenses / Contribution Margin Ratio = $5,600,000 / 26.55% = $21,092,279