Praveen Company manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding that has not been as profitable as planned. Because Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $230 selling price per unit. Its fixed costs for the year are expected to be $331,200. Variable costs for the year are expected to be $161 per unit. Forecasted variable costs are $204 per 100 yards of XT rope. 1) Estimate Product XT’s break-even point in terms of sales units and sales dollars. (1 unit = 100 yards).
2(a) Estimate Product XT’s break-even point in terms of sales units. (1 unit = 100 yards).
2(b) Estimate Product XT’s break-even point in terms of sales dollars.
3) Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.
PRAVEEN CO.
Contribution Margin Income Statement (at Break-Even) — Product XT
Units $ per unit Total
Sales 4,500 $200 $900,000
Less:
Variable cost 4,500 140 630,000
Contribution margin 4,500 $60 270,000
Less:
Fixed costs 270,000
Net income $0