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Chapter 20: Q20-15RQ (page 1119)

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

Short Answer

Expert verified

Answer

  1. Equation approach
  2. Contribution margin approach
  3. Contribution margin ratio approach

Step by step solution

01

Step 1:three approaches to calculating the sales required to achieve the breakeven point

  1. Equation approach
  2. Contribution margin approach
  3. Contribution margin ratio approach
02

Formula for three approaches

  1. The equation approach:

Operating income= Net sales revenue – Total costs

  1. Contribution margin approach:

Required sales in units = Fixed costs + Target profit /Contribution Margin Per unit

  1. Contribution margin ratio approach

Contribution margin ratio = Fixed costs + Target profit / Contribution margin ratio

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Most popular questions from this chapter

Identifying variable, fixed, and mixed costs Holly’s Day Care has been in operation for several years. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of students enrolled.

1. Building rent.

2. Toys.

3. Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.

4. Afternoon snacks.

5. Lawn service contract at $200 per month.

6. Holly’s salary.

7. Wages of afterschool employees.

8. Drawing paper for students’ artwork.

9. Straight-line depreciation on furniture and playground equipment.

10. Fee paid to security company for monthly service.

How does a contribution margin income statement differ from a traditional income statement?

The Circle Clock Company sells a particular clock for \(25. The variable costs are \)13 per clock and the breakeven point is 250 clocks. The company expects to sell 300 clocks this year. If the company actually sells 400 clocks, what effect would the sale of additional 100 clocks have on operating income? Explain your answer.

What is the purpose of using the high-low method?

Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit

Compute the missing amounts for the following table.

A B C Sales price per unit \( 200 \) 4,000 $ 5,220 Variable costs per unit 80 1,000 2,088 Total fixed costs 73,200 660,000 3,758,400 Target profit 266,760 3,000,000 3,132,000 Calculate:                          

Contribution margin per unit                          

Contribution margin ratio                          

Required units to break even                          

Required sales dollars to break even

Required units to achieve target profit
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