Question

You are a division manager at Caddo Co. Below is your division’s income statement and other relevant information for the current year:

GAAP Income Statement			Other Relevant Information
Revenue	$ 250,000		Fixed Mfg OH costs	$22,000
Cost of Goods Sold	125,000		Variable Mfg OH	$0
Gross Margin	125,000		Fixed Admin costs	$45,000
Administrative Costs	45,000		Variable selling costs	3% of revenues
Selling Costs	55,000
Profit	$ 25,000

Income statement in contribution margin format -

Revenue		$250,000
Less: Variable Costs
Variable Costs of Goods Sold	$103,000
Variable Selling Costs	$3,750
Total Variable Costs		$106,750
Contribution Margin		$143,250
Less: Fixed Costs
Fixed Cost of Goods Sold	$22,000
Fixed Administrative Costs	$45,000
Fixed Selling Costs	$51,250
Total Fixed Costs		$118,250
Profit		$25,000

For purposes of the next two questions, assume that all costs shown on the income statement (that you just prepared in part A) can be directly traced to your division (i.e., there are no corporate-level allocations).

Compute the breakeven point in total $ of revenues.

If revenues increased by $10,000 from your answer in part A, how much would your profits increase? Assume that the increase in revenue are purely a result of increased sales volume.

Answer 1