Asked by Katey Dotson on May 06, 2024
Verified
Erickson Inc. makes student book bags that sell for $20 each. For the coming year management expects fixed costs to be $225000. Variable costs are $14 per unit.
Instructions
(a) Compute break-even sales in dollars using the mathematical equation.
(b) Compute break-even sales using the contribution margin ratio.
(c) Compute margin of safety ratio assuming actual sales are $937500.
(d) Compute the sales required to earn net income of $150000 using the mathematical equation.
Variable Costs
Expenses that vary directly with the production output or activity levels.
Break-Even Sales
The amount of revenue needed to cover total costs, at which point a business neither makes a profit nor incurs a loss.
Margin of Safety
Represents the difference between actual or planned sales and the break-even sales, indicating the amount by which sales can drop before the business incurs a loss.
- Ascertain the equilibrium between costs and income, in both units and dollars, by manipulating a range of input variables.
- Create and dissect a CVP income statement, recognizing its pivotal role in managerial strategy formulation.
- Uncover ways to realize aimed profit levels by modifying sales, cost management, and price setting.
Verified Answer
Learning Objectives
- Ascertain the equilibrium between costs and income, in both units and dollars, by manipulating a range of input variables.
- Create and dissect a CVP income statement, recognizing its pivotal role in managerial strategy formulation.
- Uncover ways to realize aimed profit levels by modifying sales, cost management, and price setting.
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