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 $170 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $214,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $119 per 100 yards of XT rope. 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: 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: 1 Choose Denominator: Break-Even Dollars Break-even dollars /

Answer 1

Req 1	Contribution Margin	per 100 yds.
		Sales		170
	Less:	Variable cost		119
		Contribution margin		51
	Contribution Margin ratio
		Choose Numerator:	/	Choose Denominator:	=	Contribution Margin Ratio
		CM per unit	/	Sales per unit	=	Contribution margin ratio
	51	/	170	=	30%
	1(a)
		Choose Numerator:	/	Choose Denominator:	=	Break-Even Units
		Fixed costs	/	Contribution margin per unit	=	Break-even units
	$214,200	/	51	=	4200	units
	1(b)
		Choose Numerator:	/	Choose Denominator:	=	Break-Even Dollars
		Fixed costs	/	Contribution margin ratio	=	Break-even dollars
	$214,200	/	30%	=	714,000
Req 2	PRAVEEN CO.
	Contribution Margin Income Statement (at Break-Even) — Product XT
			Units	$ per unit	Total
		Sales	4,200	$170	714,000
	Less:	Variable cost	4,200	119	499,800
		Contribution margin	4,200	$51	214,200
	Less:	Fixed costs			214,200
		Net income			-