Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
Sales | $ | 3,500,000 | |||
Cost of sales: | |||||
Direct Material | $ | 500,000 | |||
Direct labor | 250,000 | ||||
Variable Overhead | 275,000 | ||||
Fixed Overhead | 600,000 | 1,625,000 | |||
Gross Profit | $ | 1,875,000 | |||
Selling and General & Admin. Exp. | |||||
Variable | 750,000 | ||||
Fixed | 250,000 | 1,000,000 | |||
Operating Income | $ | 875,000 | |||
The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is:
Multiple Choice
$2,625,000.
$1,865,672.
$1,724,138.
$2,155,172.
Answer: The correct answer is $1,724,138
qVariable Cost = Direct Material + Direct Labor + Variable
Overhead + Variable Selling and General & Admin. Exp
Variable Cost = $500,000 + $250,000 + $275,000 + $750,000
Variable Cost = $1,775,000
Fixed Cost = Fixed Overhead + Fixed Selling and General &
Admin. Exp.
Fixed Cost = $600,000 + $250,000
Fixed Cost = $850,000
Contribution Margin = Sales – Variable Cost
Contribution Margin = $3,500,000 - $1,775,000
Contribution Margin = $1,725,000
Contribution margin Ratio = Contribution Margin / Sales
*100
Contribution Margin Ratio = $1,725,000 / $3,500,000 *100
Contribution Margin Ratio = 0.492857
Break Even Point = Fixed Cost / Contribution Margin Ratio
Break Even Point = $850,000 / 0.492857
Break Even Point = $1,724,138
Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The...
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