Connect 1-Semester Access Card for Managerial Accounting
15th Edition
ISBN: 9780077522858
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 12E
EXERCISE 5-12 Multiproduct Break-Even Analysis LO5-9
Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:
Fixed expenses total $183,750 per month.
Required:
- Prepare a contribution format income statement for the company as a whole. Carry computations to one decimal place.
- What is the company's break-even point in dollar sales based on the current sales mix?
- If sales increase by $100,000 a month, by how much would you expect the monthly net operating income to increase? What are your assumptions?
Expert Solution & Answer
To determine
Break-even analysis: It is an analysis of sales revenue or unit where a company is neither earning profits nor incurring any loss.
The preparation of contribution format income statement and break-even analysis.
Answer to Problem 12E
Solution:
1) Contribution formal income statement for the company as a whole. Carry computations to one decimal place is shown below:-
| Product | |||
| Fight Dynamic | Sure Shot | Total | |
| Sales | $150,000 | $250,000 | $400,000 |
| CM ratio | 80% | 36% | 52.5% |
| Olongapo Sports Corporation’s Contribution format income statement | |
| Total | |
| Sales | $400,000 |
| Variable expenses | $190,000 |
| Contribution Margin | $210,000 |
| Fixed expenses | $183,750 |
| Net operating income | $26,250 |
2) The Break-even point in dollar sales based on the current sales mix is $ 350,000
3) The contribution format income statement with increase in sales by $ 100,000 is shown below:-
| Olongapo Sports Corporation’s Contribution format income statement | |
| Total | |
| Sales | $500,000 |
| Variable expenses | $237,500 |
| Contribution Margin | $262,500 |
| Fixed expenses | $183,750 |
| Net operating income | $78,750 |
It is assume that when sales increase by $100,000, the variable expense increase by 25% and the net operating income increases by 200%.
Explanation of Solution
Given:
| Product | |||
| Fight Dynamic | Sure Shot | Total | |
| Sales | $150,000 | $250,000 | $400,000 |
| CM ratio | 80% | 36% | ? |
Fixed expenses total $183,750 per month.
Conclusion
Hence it is concluded that the Mauro Products will neither earn profit nor incur loss at $350,000sales revenue. But if the company earns beyond this point, it will make profit and if it falls below the point, the company will suffer loss. A break-even point is technique used the companies to predict the outcome of a decision based on the analysis. It shows the exact point where a company will neither make profit nor suffer loss.
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Students have asked these similar questions
Question 2
Style photo sells only one product. The statement of comprehensive income for 2021 is provided below:
Sales
60,000
Less variable expenses
-30,000
Contribution margini
30,000
Less fixed expenses
-22,500
Net income
7,500
Required:
Calculate with workings:
a. The contribution margin ratio in percentage.
b. Three breakeven point in total sales ringgits.
Question 2
Style photo sells only one product. The statement of comprehensive income for 2021 is provided below:
Sales
60,000
Less variable expenses
-30,000
Contribution margin
30,000
Less fixed expenses
-22,500
Net income
7,500
Required:
Calculate with workings:
The contribution margin ratio in percentage.
Three breakeven point in total sales ringgits.
The sales in RM if the company wants to achieve RM40,000 in net income.
PROBLEM 7
Tito Company sells several products.
Information of average revenue and costs
are as follows:
Selling price per unitPhp20.00
Variable costs per unit:
Direct materialsPhp4.00
Direct manufacturing labor
Php1.60
Manufacturing overhead
Php0.40
Selling costsPhp2.00
Annual fixed costs
Php96,000
26. Calculate the contribution margin per
unit.
27. Calculate the number of units Tito's
must sell each year to break even.
28. Determine the breakeven point in
peso.
29. Calculate the number of units Tito's
must sell to yield a profit of Php144,000.
PROBLEM
Chapter 5 Solutions
Connect 1-Semester Access Card for Managerial Accounting
Ch. 5 - Prob. 1QCh. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3QCh. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 1AE
Ch. 5 - Prob. 2AECh. 5 - Prob. 3AECh. 5 - Prob. 4AECh. 5 - Prob. 5AECh. 5 - Prob. 1F15Ch. 5 - Prob. 2F15Ch. 5 - Prob. 3F15Ch. 5 - Prob. 4F15Ch. 5 - Prob. 5F15Ch. 5 - Prob. 6F15Ch. 5 - Prob. 7F15Ch. 5 - Prob. 8F15Ch. 5 - Prob. 9F15Ch. 5 - Prob. 10F15Ch. 5 - Prob. 11F15Ch. 5 - Prob. 12F15Ch. 5 - Prob. 13F15Ch. 5 - Prob. 14F15Ch. 5 - Prob. 15F15Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11ECh. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19PCh. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 -
PROBLEM 5-25 Changes in Fixed and Variable Costs;...Ch. 5 -
PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 -
PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 -
CASE 5-32 Break-Even Analysis for Individual...Ch. 5 - Prob. 33C
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