Able Co: Income statement, break even and CVP analysis
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Last year, Able Co. sold all the goods it produced (it had no finished goods inventories), and sales revenue were 1,260,000. It recorded the following cost for the year: see attached file
Manufacturing Selling and Admin Total
Costs Costs
Variable $420,000 $150,000 $570,000
Fixed 220,500 260,000 480,500
Total $640,500 $410,000 $1,050,500
(a)
Sales
- Cost of Goods Sold (Expense)
Gross Margin or Gross Profit
Selling & Admin (or GS&A or Operating expenses)
Net income (Operating income)
(b) Revenue - Variable costs - Fixed costs = Profit
(c) Let Y = sales dollars necessary for a before-tax target profit of $250,000
(Revenue - Variable costs)/Revenue = Contribution margin ratio (Round to six decimal places)
The contribution margin ratio =
Using equation (2.10),
Y = (Target Profit + Fixed Cost)/Contribution Margin Ratio
(d) Let Y = sales dollars necessary to break even
Using equation (2.11),
Y = Fixed Cost/Contribution Margin Ratio
a. Prepare a financial reporting income statement (that is, in the form required under GAAP for U.S. External reporting).
b. Detemine income in the manner used in cost-volume-profit analysis
c. At what sales dollar level will Able earn a before-tax target profit of $250,000
d. At what sales dollar level will Able break even.
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Please see the attached file.
Manufacturing Costs Selling & Admin Costs Total Costs
Variable $420,000 $150,000 $570,000
Fixed 220,500 260,000 480,500
Total $640,500 $410,000 $1,050,500
Sales $1,260,000.00
- Cost of Goods Sold (Expense) $640,500
...
Education
- BE, Bangalore University, India
- MS, University of Wisconsin-Madison
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