Question

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 $200 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $270,000, up to a maximum capacity of 700,000 yards of rope. Forecasted variable costs are $140 per 100 yards of XT rope. Problem 18-3A Part 2 2. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point. PRAVEEN CO. Contribution Margin Income Statement at Break-Even) - Product XT Units per unit Total

Answer 1

Contribution Margin			per 100 yds.
	Sales		$                                                   200.00
Less:	Variable cost		$                                                   140.00
	Contribution margin		$                                                     60.00
Contribution Margin ratio
	Choose Numerator:	/	Choose Denominator:	=	Contribution Margin Ratio
	CM per unit	/	Sales per unit	=	Contribution margin ratio
	$      60.00	/	$                                                   200.00	=	30%
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
	$270,000	/	$                                                     60.00	=	4,500	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
	$270,000	/	30%	=	$                                                900,000

PRAVEEN CO.
Contribution Margin Income Statement (at Break-Even) — Product XT
		Units	$ per unit	Total
	Sales	4,500	$                           200.00	$             900,000.00
Less:	Variable cost	4,500	$                           140.00	$             630,000.00
	Contribution margin	4,500	$                             60.00	$             270,000.00
Less:	Fixed costs			$             270,000.00
	Net income			0