Asked by Miftahul Khaira on May 19, 2024
Verified
The income statement for Bradford Machine Company for 2015 appears below. BRADFORD MACHINE COMPANY Income Statement For the Year Ended December 31, 2015 Sales (40,000 units) $1,000,000 Variable expenses 700,000‾ Contribution margin 300,000 Fixed expenses360,000‾ Net income (loss) $(60,000)\begin{array}{c} \text {BRADFORD MACHINE COMPANY }\\ \text {Income Statement}\\ \text { For the Year Ended December 31, 2015}\\\\\begin{array}{llr} \text { Sales (40,000 units) } &\$1,000,000\\ \text { Variable expenses } &\underline{700,000}\\ \text { Contribution margin } &300,000\\ \text { Fixed expenses} &\underline{360,000}\\ \text { Net income (loss) } &\$(60,000)\\\end{array}\end{array}BRADFORD MACHINE COMPANY Income Statement For the Year Ended December 31, 2015 Sales (40,000 units) Variable expenses Contribution margin Fixed expenses Net income (loss) $1,000,000700,000300,000360,000$(60,000)
Instructions
Answer the following independent questions and show computations using the contribution margin technique to support your answers:
1. What was the company's break-even point in sales dollars in 2015?
2. How many additional units would the company have had to sell in 2016 in order to earn net income of $45000?
3. If the company is able to reduce variable costs by $2.50 per unit in 2016 and other costs and unit revenues remain unchanged how many units will the company have to sell in order to earn a net income of $45000?
Contribution Margin Technique
A method used to evaluate how sales affect net income or profits, calculated as sales revenue minus variable costs.
Net Income (Loss)
The total profit or loss a company generates in a specific period after all expenses, taxes, and costs have been deducted from total revenue.
Fixed Expenses
Costs that do not change with the level of production or sales activities within a certain range or period.
- Employ the ideas of contribution margin across diverse business situations.
- Conduct Cost-Volume-Profit analysis across various business situations and evaluate the financial results.
Verified Answer
AB
Annakaren BenavidesMay 26, 2024
Final Answer :
1. $360,00030%=$1,200,000\frac { \$ 360,000 } { 30 \% } = \$ 1,200,00030%$360,000=$1,200,000
2. $360,000+$45,00030%=$1,350,000\frac { \$ 360,000 + \$ 45,000 } { 30 \% } = \$ 1,350,00030%$360,000+$45,000=$1,350,000 Total sales needed.
$1,350,000$25=54,000\frac { \$ 1,350,000 } { \$ 25 } = 54,000$25$1,350,000=54,000 total units to be sold
40,000 actual units sold
14,000 additional units to be sold Note: Required sales in units can be obtained directly by dividing fixed costs plus profit by contribution margin per unit:
($360000 + $45000) ÷ ($25 - $17.50) = 54000 units 3. 2015 Variable cost per unit =$17.50($700,000÷40,000 units ) Variable cost reduction =2.50\begin{array}{l}2015 \text { Variable cost per unit }=\quad \$ 17.50 \quad(\$ 700,000 \div 40,000 \text { units }) \\\text { Variable cost reduction }=2.50\end{array}2015 Variable cost per unit =$17.50($700,000÷40,000 units ) Variable cost reduction =2.50
2016 Variable cost per unit $15.002016 \text { Variable cost per unit } \$ 15.002016 Variable cost per unit $15.00
Expected contribution margin $10($25−$15)\$ 10 ( \$ 25 - \$ 15 )$10($25−$15) $360,000+$45,000$10=40,500 units \frac { \$ 360,000 + \$ 45,000 } { \$ 10 } = 40,500 \text { units }$10$360,000+$45,000=40,500 units
2. $360,000+$45,00030%=$1,350,000\frac { \$ 360,000 + \$ 45,000 } { 30 \% } = \$ 1,350,00030%$360,000+$45,000=$1,350,000 Total sales needed.
$1,350,000$25=54,000\frac { \$ 1,350,000 } { \$ 25 } = 54,000$25$1,350,000=54,000 total units to be sold
40,000 actual units sold
14,000 additional units to be sold Note: Required sales in units can be obtained directly by dividing fixed costs plus profit by contribution margin per unit:
($360000 + $45000) ÷ ($25 - $17.50) = 54000 units 3. 2015 Variable cost per unit =$17.50($700,000÷40,000 units ) Variable cost reduction =2.50\begin{array}{l}2015 \text { Variable cost per unit }=\quad \$ 17.50 \quad(\$ 700,000 \div 40,000 \text { units }) \\\text { Variable cost reduction }=2.50\end{array}2015 Variable cost per unit =$17.50($700,000÷40,000 units ) Variable cost reduction =2.50
2016 Variable cost per unit $15.002016 \text { Variable cost per unit } \$ 15.002016 Variable cost per unit $15.00
Expected contribution margin $10($25−$15)\$ 10 ( \$ 25 - \$ 15 )$10($25−$15) $360,000+$45,000$10=40,500 units \frac { \$ 360,000 + \$ 45,000 } { \$ 10 } = 40,500 \text { units }$10$360,000+$45,000=40,500 units
Learning Objectives
- Employ the ideas of contribution margin across diverse business situations.
- Conduct Cost-Volume-Profit analysis across various business situations and evaluate the financial results.