Question

Presented here is the income statement for Fairchild Co. for March:

Sales	$	83,500
Cost of goods sold		43,000
Gross profit	$	40,500
Operating expenses		30,500
Operating income	$	10,000

Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 33%.

Required:

a. Rearrange the preceding income statement to the contribution margin format.

b. Calculate operating income if sales volume increases by 10%. (Do not round intermediate calculations.)

c. Calculate the amount of revenue required for Fairchild to break-even.

Break-even

Answer 1

a)

Sales	$ 83,500
Less: Variable expenses ($83,500*77%)	$ 64,295
Contribution margin	$ 19,205
Less: Fixed cost ($19,205-$10,000)	$    9,205
Net income	$ 10,000

b)

Sales ($83,500*110%)	$ 91,850.00
Less: Variable expenses ($64,295*110%)	$ 70,724.50
Contribution margin	$ 21,125.50
Less: Fixed cost	$    9,205.00
Net income	$ 11,920.50

c)

Break even point in sales = Total Fixed Expenses / Contribution margin ratio

Break even point in sales = $83,500/33%

Break even point in sales = $83,500/33%

Break even point in sales = $253,030.303