Question

Reed Company sells dolls. The planned income statement for the next year is as follows: $812000...

Reed Company sells dolls. The planned income statement for the next year is as follows: $812000 sales revenue $324800 variable costs $429600 fixed costs Round your final answers to the nearest dollar.

1. What is break-even revenue with this plan?

2. Planned net income is $57600. How much revenue does Reed Company need to increase net income by $30000?

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Answer #1

1.Break Even Revenue=Fixed Cost/Contribution Margin Ratio

Fixed cost=$429600

Contribution=sales-Variable cost/Sales=$812,000-$324800/812,000=$487,200/812,000=60%

Break Even Revenue=$429,600/0.60=$716,000

2.If the company wants to Increase the net income of $30,000 Besides $57,600 then

=Fixed Cost + Desired Profit/Contribution Margin Ratio

=$429,600 +$87600/0.60=$862,000

So Revenue should be $862,000 to earn a profit of $30,000 than existing Profit of $57,600.

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