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 $80, and the Deluxe set sells for $95. The variable expenses associated with each set are given below. points Variable production costs Sales commissions (25% of sales price) Standard $ 25.00 $ 20.00 Deluxe $ 40.00 $ 23.75 8 02:07:14 Skipped The company's fixed expenses each month are: eBook Advertising Depreciation Administrative $ 115,000 $ 24,700 $ 68,000 Print References 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: April May Standard 5,000 2,000 Deluxe 3,000 6,000 Total 8,000 8,000 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?

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) Carbex, Inc. Income Statement For April Standard Deluxe Amount % Amount % 400000 100 % 285000 1001 Total Amount 685000 100 - Sales B Variable cost Variable production cost 0 Sales Commission 125000 100000 31.31% 25% 120000 71250 42.1 % 25 245000 171250 35.8 % 25 % % 175000 93750 32.9 268750 39.2 3 Contribution Margin 4 Fixed expenses 5 Advertising 6 Depreciation 7 Adminstrative 8 Total fixed expenses 9 Net income 115000 24700 68000 207700 61050

1 Part 2) om t in Carbex, Inc. Income Statement For May Standard Deluxe Amount % Amount % 160000 100 % 570000 100 Total Amount % 730000 100 5 Sales 7 Variable cost 3 Variable production cost Sales Commission 50000 40000 31.3 % 25% 240000 142500 42.1 % 25 % 290000 182500 39.7 % 25% 70000 43.8 187500 32.9 257500 3 5.3 2 Contribution Margin 3 Fixed expenses 4 Advertising 5 Depreciation 5 Adminstrative 7 Total fixed expenses 3 Net income 115000 24700 68000 207700 49800

10 Part 3) 21 Break even dollar sales for april 2 = fixed cost / contribution margin ratio 33 =207700/39.2% 14 = $ 529847 26 Thus the correct answer $ 529847 38 Note 19 if we dint round off the intermediate calculation to one decimal places then answer will be = $ 529393 52 Part 4) 53 Break even point will be higher in May 55 Because the contribution margin ratio is lower in may as compared to april due to change in sales mix