Sunn Company manufactures a single product that sells for $180 per unit and whose vanable costs are $135 per us. The compan annual fixed costs are $562.500. (1) Prepare a contribution margin income statement at the break-even point (2) If the company’s fixed costs increase by $135,000, what amount of sales (in dollars) is needed to break even? Complete this question by entering your answers in the tabs below. Required Required 2 question 4. the drop down menus are the phrases to choose from, help please 25 Q Prepare a contribution margin income statement at the break-even point SUNN COMPANY Contribution Margin Income Statement fat freak-Eveni
The Correct Answer and Explanation is :
Contribution Margin Income Statement at the Break-Even Point:
SUNN COMPANY
Contribution Margin Income Statement at Break-Even Point
| Description | Amount |
|---|---|
| Sales | $1,125,000 |
| Variable Costs | $945,000 |
| Contribution Margin | $180,000 |
| Fixed Costs | $562,500 |
| Net Income | $0 |
Explanation of the Contribution Margin Income Statement at the Break-Even Point:
1. Sales at Break-Even Point: To calculate the sales at the break-even point, you need to know the contribution margin per unit and the fixed costs.
- Sales price per unit = $180
- Variable cost per unit = $135
Contribution margin per unit = Sales price – Variable costs
= $180 – $135 = $45
At the break-even point, the total contribution margin needs to cover the total fixed costs. To calculate the number of units required to break even, you divide the fixed costs by the contribution margin per unit:
Units to break even = Fixed costs / Contribution margin per unit
= $562,500 / $45 = 12,500 units
Sales at break-even = Units to break even × Sales price per unit
= 12,500 × $180 = $1,125,000
Thus, at the break-even point, the company needs to generate $1,125,000 in sales.
2. Sales Needed to Break Even After Fixed Costs Increase by $135,000:
If the fixed costs increase by $135,000, the new total fixed costs become:
New fixed costs = Original fixed costs + Increase in fixed costs
= $562,500 + $135,000 = $697,500
Now, we calculate the new sales needed to break even:
Units to break even = New fixed costs / Contribution margin per unit
= $697,500 / $45 = 15,500 units
Sales needed to break even = Units to break even × Sales price per unit
= 15,500 × $180 = $2,790,000
Summary:
- At the break-even point with the original fixed costs, the sales required are $1,125,000.
- If fixed costs increase by $135,000, the sales required to break even become $2,790,000.