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 $86, and the Deluxe set sells for $101. The variable expenses associated with each set are given below. Variable production costs Sales commissions (28% of sales price) orice Standard $ 28.00 $ 24.08 $ 28.08 Deluxe $ 43.00 $ 28.28 $ 13:28 The company's fixed expenses each month are: Advertising Depreciation Administrative $ 118,000 $ 25,600 $ 69,500 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: April May Standard 5,300 2,300 Deluxe 3,300 6,300 Total 8,600 8,600 Required: 1-a. Prepare contribution format income statement for April. 1-b. Prepare contribution format income statement 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?

Format for the requirements 1a and 1b are as follows;

Answer 1

1-a.

Carbex, Inc.
Income Statement For April
	Standard			Deluxe			Total
	Amount	%		Amount	%		Amount	%
Sales revenue	455800	100.0	%	333300	100.0	%	789100	100.0	%
Variable expenses:
Variable production costs	148400	32.6	%	141900	42.6	%	290300	36.8	%
Sales commissions	127624	28.0	%	93324	28.0	%	220948	28.0	%
			%			%			%
			%			%			%
Total variable expenses	276024	60.6	%	235224	70.6	%	511248	64.8	%
Contribution margin	179776	39.4	%	98076	29.4	%	277852	35.2	%
Fixed expenses:
Advertising							118000
Depreciation							25600
Administrative							69500
Total fixed expenses							213100
Net income							64752

1-b.

Carbex, Inc.
Income Statement For May
	Standard			Deluxe			Total
	Amount	%		Amount	%		Amount	%
Sales revenue	197800	100.0	%	636300	100.0	%	834100	100.0	%
Variable expenses:
Variable production costs	64400	32.6	%	270900	42.6	%	335300	40.2	%
Sales commissions	55384	28.0	%	178164	28.0	%	233548	28.0	%
			%			%			%
			%			%			%
Total variable expenses	119784	60.6	%	449064	70.6	%	568848	68.2	%
Contribution margin	78016	39.4	%	187236	29.4	%	265252	31.8	%
Fixed expenses:
Advertising							118000
Depreciation							25600
Administrative							69500
Total fixed expenses							213100
Net income							52152

3-a. Break-even point in dollar sales = Total fixed expenses/Contribution margin ratio

Break-even point in dollar sales for April = $213100/35.2% = $605397.73

Kindly round off as required since no instructions provided with the question regarding the same.

3-b. The break-even point in May would be higher than the break-even point in April since the contribution margin % is lower in May at 31.8% as compared to 35.2% in April.