Contribution margin and break-even analysis Point Loma Manufacturing Inc., produces and...

Contribution margin and break-even analysis

Point Loma Manufacturing Inc., produces and sells a product with a price of $100 per unit. The following cost data have been prepared for its estimated upper and lower limits of activity:

Required:

1. Classify each cost element as either variable, fixed, or semivariable. (Hint: Recall that variable expenses must go up in direct proportion to changes in the volume of activity.)

2. Calculate the break-even point in units and dollars. (Hint: First use the high-low method illustrated in Chapter 4 to separate costs into their fixed and variable components.)

3. Prepare a break-even chart.

4. Prepare a contribution income statement, similar in format to the statement appearing on page 519, assuming sales of 5,000 units.

5. Recompute the break-even point in units, assuming that variable costs increase by 20% and fixed costs are reduced by $50,000.