Question

Required information The following information applies to the questions displayed below.) Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year's plans call for a $240 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $235,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $192 per 100 yards of XT rope. 1. Estimate Product XT's break-even point in terms of sales units and sales dollars. (1 unit = 100 yards) (Do not round intermediate calculations.) Contribution Margin per 100 yds. Contribution margin Contribution Margin ratio Choose Numerator: 1 Choose Denominator = Contribution Margin Ratio Contribution margin ratio 1(a) Estimate Product XT's break-even point in terms of sales units. (1 unit = 100 yards) Choose Numerator: 1 Choose Denominator: = Break-Even Units Break-even units 1(b) Estimate Product XT's break-even point in terms of sales dollars. Choose Numerator: Choose Denominator: = = Break-Even Dollars Break-even dollars

Answer 1

Contribution Margin			per 100 yds.
	Sales		240
Less:	Variable cost		192
	Contribution margin		48
Contribution Margin ratio
	Choose Numerator:	/	Choose Denominator:	=	Contribution Margin Ratio
	CM per unit	/	Sales per unit	=	Contribution margin ratio
	48	/	240	=	20%
1(a) Estimate Product XT’s break-even point in terms of sales units. (1 unit = 100 yards)
	Choose Numerator:	/	Choose Denominator:	=	Break-Even Units
	Fixed costs	/	Contribution margin per unit	=	Break-even units
	235200	/	48	=	4900	units
1(b) Estimate Product XT’s break-even point in terms of sales dollars.
	Choose Numerator:	/	Choose Denominator:	=	Break-Even Dollars
	Fixed costs	/	Contribution margin ratio	=	Break-even dollars
	235200	/	20%	=	1176000
2
PRAVEEN CO.
Contribution Margin Income Statement (at Break-Even) — Product XT
		Units	$ per unit	Total
	Sales	4,900	240	1176000
Less:	Variable cost	4,900	192	940800
	Contribution margin	4,900	48	235200
Less:	Fixed costs			235200
	Net income			0