Chapter 22, Problem 16E

(a)

To determine

CVP Graph: The cost-volume-profit graph represents the cost-volume-profit analysis in a graphical form. The graph represents the relationship between the sales in units and sales in dollars using the fixed costs, variable costs and the total costs.

Break-Even Point: The break-even point is a point where total cost incurred is the same as the total revenue earned. At the break-even point, the profit will be zero. The break-even point is the point in the business where there is no loss and no gain.

Margin of Safety: The margin of safety represents the difference between the actual value of the stock and the market price of the stock. This value represents the value that can fall before reaching the break-even point.

To prepare: A CVP graph assuming the sales value as $3,200,000.

(b)

To determine

The break-even point in (1) units and (2) dollars.

(c)

To determine

The margin of safety in (1) dollars and (2) in ratio.