Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 21, Problem 6BPSB
To determine

Break-even point in dollar sales:

It is the value of sales in dollar where a company is neither making profit nor incurring any loss.

Contribution Margin Income Statement:

A contribution margin income statement separates the variable cost and fixed cost. The variable costs are deducted first from the sales revenue to arrive at contribution margin, from which fixed costs are deducted to determine the net income or loss.

To determine:

1. Compute the break-even point in dollar sales under the (a) existing business strategy and (b) new strategy that alters both unit selling price and variable costs.

2. Prepare a forecasted contribution margin income statement with two columns showing the expected results of (a) the existing strategy and (b) changing to the new strategy.

Expert Solution & Answer
Check Mark

Answer to Problem 6BPSB

Solution:

1.

Break-Even Point in dollars
Existing Strategy New Strategy
$1,727,273 $1,727,273

2.

Net Income
Existing Strategy New Strategy
$112,500 $475,500
After-tax return sales
5.6% 16.5%

Explanation of Solution

Explanation:

  Existing Strategy New Strategy
Sales price per unit
Existing Strategy
New Strategy [$20.00 X (1-20%)]
$20.00 $16.00
Total Variable Cost per unit    
Unit Costs ($800,000 / 100,000) $8.00  
Unit Costs ($800,000 / 100,000) X (1 -25%)   $6.00
Packaging ($100,000/ 100,000) $1.00  
Packaging ($100,000/ 100,000) X (1+20%)   $1.20
Total Variable Cost per unit $9.00 $7.20
Contribution margin $11.00
($20.00 - $9.00)
$8.80
($16.00 - $7.20)
Contribution margin ratio 55%
($11.00/$20.00)
55%
($8.80/$16.00)

BreakEven Point in dollar sales = Fixed CostContribution margin ratioExisting StrategyBreakEven Point in dollar sales = $950,0000.55                                                    = $1,727,273  New StrategyBreakEven Point in dollar sales = $950,0000.55                                                    = $1,727,273  

2.

BEST COMPANY
Contribution Margin Income Statement
  Existing Strategy New Strategy
Sales Revenue $2,000,000 $2,880,000
Less: Variable Cost $900,000 $1,296,000
Contribution Margin $1,100,000 $1,584,000
Less: Fixed Cost $950,000 $950,000
Income before taxes $150,000 $634,000
Income Taxes (25% rate) $37,500 $158,500
Net Income $112,500 $475,500

Computation of after-tax return on sales

AfterTax Return on sales = Net IncomeSales   Existing Strategy = $112,500$2,000,000                              = 5.6% New Strategy = $475,500$2,880,000                         = 16.5%

Conclusion

Conclusion:

The after-tax return on sales for existing strategy is 5.6% and new strategy is 16.5%.

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Chapter 21 Solutions

Loose Leaf for Fundamental Accounting Principles

Ch. 21 - How does assuming that operating activity occurs...Ch. 21 - Prob. 12DQCh. 21 - Prob. 13DQCh. 21 - Prob. 14DQCh. 21 - Prob. 15DQCh. 21 - Prob. 16DQCh. 21 - Prob. 17DQCh. 21 - Prob. 18DQCh. 21 - Prob. 19DQCh. 21 - Prob. 20DQCh. 21 - Prob. 21DQCh. 21 - Prob. 22DQCh. 21 - Prob. 1QSCh. 21 - Prob. 2QSCh. 21 - Prob. 3QSCh. 21 - Prob. 4QSCh. 21 - Prob. 5QSCh. 21 - Prob. 6QSCh. 21 - Prob. 7QSCh. 21 - Prob. 8QSCh. 21 - Prob. 9QSCh. 21 - Prob. 10QSCh. 21 - Prob. 11QSCh. 21 - Prob. 12QSCh. 21 - Prob. 13QSCh. 21 - Prob. 14QSCh. 21 - Prob. 15QSCh. 21 - Prob. 16QSCh. 21 - Prob. 17QSCh. 21 - Prob. 18QSCh. 21 - Prob. 19QSCh. 21 - Prob. 20QSCh. 21 - Prob. 21QSCh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Prob. 3ECh. 21 - Exercise 21-4 Measurement of cost behavior using a...Ch. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Prob. 8ECh. 21 - Prob. 9ECh. 21 - Prob. 10ECh. 21 - Prob. 11ECh. 21 - Prob. 12ECh. 21 - Prob. 13ECh. 21 - Prob. 14ECh. 21 - Prob. 15ECh. 21 - Prob. 16ECh. 21 - Prob. 17ECh. 21 - Prob. 18ECh. 21 - Prob. 19ECh. 21 - Prob. 20ECh. 21 - Prob. 21ECh. 21 - Prob. 22ECh. 21 - Prob. 23ECh. 21 - Prob. 24ECh. 21 - Prob. 25ECh. 21 - Prob. 26ECh. 21 - Prob. 27ECh. 21 - Prob. 1APSACh. 21 - Prob. 2APSACh. 21 - Prob. 3APSACh. 21 - Prob. 4APSACh. 21 - Prob. 5APSACh. 21 - Prob. 6APSACh. 21 - Prob. 7APSACh. 21 - Prob. 1BPSBCh. 21 - Prob. 2BPSBCh. 21 - Prob. 3BPSBCh. 21 - Prob. 4BPSBCh. 21 - Prob. 5BPSBCh. 21 - Prob. 6BPSBCh. 21 - Prob. 7BPSBCh. 21 - Prob. 21SPCh. 21 - Prob. 1BTNCh. 21 - Prob. 2BTNCh. 21 - Prob. 3BTNCh. 21 - Prob. 4BTNCh. 21 - Prob. 5BTNCh. 21 - Prob. 6BTNCh. 21 - Prob. 7BTNCh. 21 - Prob. 8BTNCh. 21 - Prob. 9BTN
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