Question

Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows:

Sales					$	44,000,000
Operating expenses:
Variable expenses	$	28,600,000
Fixed expenses		7,700,000
Total expenses						36,300,000
Operating profit					$	7,700,000

Required:

1. Determine the breakeven point in sales dollars.

2. Determine the required sales in dollars to earn a before-tax profit of $9,152,500. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

3. What is the breakeven point in sales dollars if the variable expenses increases by 9%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

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Answer 1

1.

Contribution margin percentage

= (Sales - Variable costs) /sales

= ($44,000,000 - $28,600,000)/$44,000,000

= 35%

Break even point (sales dollar)

= Fixed expenses/ contribution margin percentage

= $7,700,000/ 0.35

= $22,000,000

2.

Contribution = Fixed expenses + Profit

= $7,700,000 + $9,152,500

= $16,852,500

Required sales

= Contribution / contribution percentage

= $16,852,500 / 0.35

= $48,150,000

3.

If variable expenses increases by 9%

= $28,600,000 *1.09

= $31,174,000

Contribution margin percentage

= ($44,000,000 - $31,174,000)/$44,000,000

= 29.15%

Break even point (sales dollar)

= Fixed expenses /contribution margin percentage

= $7,700,000/0.2915

= $26, 415,094