(a)
Working Note:
Income Statement for Year 2019
Particulars | Amount |
Sales | 1,500,000.00 |
Less: Variable expenses | 750,000.00 |
Contribution | 750,000.00 |
Less: Fixed Expenses | 1,000,200.00 |
(250,200.00) |
Break-even point in dollars for 2019 = (Fixed cost) / Contribution margin ratio
Contribution Margin Ratio= Total contribution/ Total sales units
= 750000/75000
= 10
Break-even point in dollars for 2019 = (Fixed cost) / Contribution margin ratio
= 1000200/10
= $ 100,020
Hence break-even point in dollars for 2019 is $100,020.
(2)
Alternative - 1
Particulars | Amount | |
Sales | 1,875,000.00 | 75000 units * {(1500000/75000)*125%}= 75000*25 |
Less: Variable expenses | 750,000.00 | |
Contribution | 1,125,000.00 | |
Less: Fixed Expenses | 1,000,200.00 | |
124,800.00 |
Contribution Margin Ratio= Total contribution/ Total sales units
= 1125000/75000 = 15
Break-even point in dollars= (Fixed cost) / Contribution margin ratio
= 1000200/15
= $ 66680
Alternative 2
New Fixed expense= 1000200 - old salary + new salary
= 1000200 - 198000 + 37995
= 840,195
new variable expense =750000 + 1500000 *5%
= 750000+75000
= 825000
Income statement as follows:
Particulars | Amount |
Sales | 1,500,000.00 |
Less: Variable expenses | 825,000.00 |
Contribution | 675,000.00 |
Less: Fixed Expenses | 840,195.00 |
(165,195.00) |
Contribution Margin Ratio= Total contribution/ Total sales units
= 675000 / 75000 = 9
Break-even point in dollars= (Fixed cost) / Contribution margin ratio
= 840195/ 9
= $93,355
Alternative 3
The structure of costs and expenses in 2020 will be as follows after buying high tech factory machine:
Particulas | Total | Variable | Fixed |
COGS | 1,080,000.00 | 540,000.00 | 540,000.00 |
selling exp | 520,200.00 | 95,000.00 | 425,000.00 |
Adm exp | 150,000.00 | 55,000.00 | 95,000.00 |
1,750,200.00 | 690,000.00 | 1,060,000.00 |
Hence the income statement will be as follows:
Particulars | Amount |
Sales | 1,500,000.00 |
Less: Variable expenses | 690,000.00 |
Contribution | 810,000.00 |
Less: Fixed Expenses | 1,060,000.00 |
(250,000.00) |
Contribution Margin Ratio= Total contribution/ Total sales units
= 810000 / 75000 = 10.8
Break-even point in dollars= (Fixed cost) / Contribution margin ratio
= 1060000/10.8
= $98148.15
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