Question

Required information Problem 21-3A CVP analysis and charting LO P2, P3 (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 $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 550,000 yards of rope. Forecasted variable costs are $140 per 100 yards of XT rope. Problem 21-3A Part 1 1. 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: Choose Denominator: = Break-even units Break-even units 0 1(b) Estimate Product XT's break-even point in terms of sales dollars. Choose Numerator: Choose Denominator: Break-even dollars Break-even dollars

Answer 1

1.

Contribution Margin		per 100 yds.
Selling price		$                                    200
Less : Variable Cost		$                                    140
Contribution Margin		$                                      60
Contribution Margin Ratio
Contribution Margin	/	Selling price	=	Contribution Margin Ratio
$                                        60	/	$                                    200	=	30%
Break Even in terms of sales units
Fixed Expenses	/	Contribution Margin	=	Break-Even Units
$                             2,70,000	/	$                                      60	=	4500
Break Even in terms of Dollars
Fixed Expenses	/	Contribution Margin Ratio	=	Break-Even Sales
$                             2,70,000	/	30%	=	$     9,00,000

3.

	Units	$ per unit	Total
Sales Revenue	4500	$        200	$9,00,000
Less : Variable Cost	4500	$        140	$6,30,000
Contribution Margin		$           60	$2,70,000
Less : Fixed Cost			$2,70,000
Operating Income			$            -