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 $68, and the Deluxe set sells for $83. The variable expenses associated with each set are given below.

	Standard		Deluxe
Variable production costs	$	19.00	$	34.00
Sales commissions (19% of sales price)	$	12.92	$	15.77

The company’s fixed expenses each month are:

Advertising	$	109,000
Depreciation	$	22,900
Administrative	$	65,000

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:

	Standard	Deluxe	Total
April	4,400	2,400	6,800
May	1,400	5,400	6,800

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

- contribution formal income statement for apailla pasiticulars A standard (6) delux 183 Selling porice per unit (~ variable cost ) (1) variable production costa Sales Commission (34) (19) (18.92) (15.77) 33.23 36.08 contribution per unit (a) un units sold (b) ola 2400 uuoo 158752 79752 Caxb) Total Contribution txert cost iz advertising 04 op 1 ) lolot 158752 79752 238504 particulaby .: Total contribution y standard - Delux Combined contribution fixed cost ci) advertising (15) depreciation in administrative ... (109000) (Oorp (29900) (65000) HI Goy profit

+b) contarci bution format income statement for may particulary $) standard 1$) deur 68 83 (a) variable cost (19) (34) (1) variable production cost (ii sales Commission C12-92) bor (15:77) Selling price Contribution 33-23 36.08 pes unit 5400 units sold 1400 mm (79442 Total Contobution 50513 SE particulars Total contribution - Standard 50512 deluxerel 179442 obrote e + 289,954 combined contribution A fixed cost (i) adventising C109,000) (iſ depreciation (iiy administrative (22900) (65000) 33 054 profit

3-a) Break even point in $ (apsil) wsa Total sales standard + delar = (uuoo units x $68) +(Quoo urib x $83) = $ 299 200 + $199 200 - $498, 400 toere + Total - standard delur contribution = 158752+79752 = 238504 on 238504 oratio = conteibution _ x100 = 47.85% 498400 pv sales 109000 + 22900 + 65000 Boreak even point & fixed cost : 47.85% Pyratio 196900 $ 411,494/— 47.85y.

34) Break even point in (may) ani din ang Total sales & 95000 448200 y standard - delux (1400 x $68) (5400 X $83) 543,400 - 50512 Total contribution y standard es delure = 179442 229,954 non xloo pv ratio = 19 contribution sales 229954 x 100 = 42.3 % ) 543 4001 a no ang sau poat e Bleak even point ($) = fixed cost puratio 196900 42.34 = $465, 484