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 $230 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $331,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $161 per 100 yards of XT rope.

Answer 1

compute break even point of product XT of sales in units and sales in dollars

Break even point (in units)=fixed expenses/CONTRIBUTION MARGIN PER UNIT

Total fixed cost=$331200

CONTRIBUTION MARGIN i	per 100yards
Sales	230
(-) variable cost	(161)

CONTRIBUTION MARGIN per unit=$69

CONTRIBUTION MARGIN ratio= CONTRIBUTION MARGIN per unit/selling price per unit

=$69/$230=30%

Break even point in unit

=$331200/$69=4800

Break even in dollars

$331200/30%=$1104000

Income statement at BREAK EVEN POINT

Particular	amount($)
Sales (4800×230)	1104000
(-) variable (4800×161)	((772800)
CONTRIBUTION	331200
(-) fixed expenses	(331200)
Net income	0

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