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Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro...

Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

Sales                                                             $1,500,000

Cost of Sales:

   Direct Material                $250,000

   Direct labor                       150,000

   Variable Overhead                75,000

    Fixed Overhead                 100,000             575,000

Gross Profit                                                    925,000

Selling and General & Admin. Exp.

     Variable                            200,000

      Fixed                               250,000               450,000

Operating Income 475,000

For the coming year, the management of Gardner Corporation anticipates a 10 percent increase in sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed costs. The break-even point for next year would be: A) $474,000. B) $214,018.

C) $729,027. D) $862, 103

Business   Accounting   
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Answer #1

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The Breakeven point is (c) ie$ 729027

Sales= 1500000*110%= (A) $1650000

Less : Variable overhead (B)

Diirect Material $250000*112% =$280000

Direct Labour $150000*112%= $168000

Variable overhead $75000*112%= $84000

Variable Selling & admin. Exp $200000*112%=$224000

Total Variable Overhead =756000

Contribution(c)=A-B =894000

PV Ratio= Contribution/Sales*100

= 894000/1650000*100

=54.181818181

Break even point sales= Fixed cost / P/v Ratio

=395000/54.181818181*100

=$729027

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