For the coming year, Cleves Company anticipates a unit selling price of $120, a unit variable cost of $60, and fixed costsof $552,000.
Required:
1. Compute the anticipated break-even sales
(units).
units
2. Compute the sales (units) required to
realize a target profit of $270,000.
units
3. Construct a cost-volume-profit chart, assuming maximum sales of 18,400 units within the relevant range. From your chart, indicate whether each of the following sales levels would produce a profit, a loss, or break-even.
$1,548,000 | |
$1,380,000 | |
$1,104,000 | |
$828,000 | |
$660,000 |
4. Determine the probable income (loss) from
operations if sales total 14,700 units. If required, use the minus
sign to indicate a loss.
$
1) Contribution Margin per unit = Selling price - Variable cost
= $120 - $60 = $60 per unit
Break Even Sales (units) = Fixed Cost/Contribution Margin per unit
= $552,000/$60 per unit = 9,200 units
2) Units required to be sold = (Fixed Cost+Target Profit)/Contribution Margin per unit
= ($552,000+$270,000)/$60 per unit
= $822,000/$60 per unit = 13,700 units
3) Break Even Sales in $ = Break even units*Selling price
= 9,200 units*$120 per unit = $1,104,000
The sales above $1,104,000 will generate profit and sales below $1,104,000 will result in loss.
Sales | Profit/(Loss) or Break Even |
$1,548,000 | Profit |
$1,380,000 | Profit |
$1,104,000 | Break Even |
$828,000 | (Loss) |
$660,000 | (Loss) |
4) Net Income = Total Contribution Margin - Fixed Cost
= (14,700 units*$60 per unit) - $552,000
= $882,000 - $552,000 = $330,000
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