Question

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.

$

Answer #1

**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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