Question

(Algo) Income reporting and break-even analysis LO P2 Sunn Company manufactures a single product that sells for $184 per unit and whose variable costs are $138 per unit. The company's annual fixed costs are $699,200. Prepare a contribution margin income statement at the break-even point.

Answer 1

To prepare a contribution margin income statement at the break-even point, multiply the break-even quantity by the selling price per unit, and the variable costs per unit to calculate the total revenues and total variable costs, respectively. The contribution margin is the difference between the total revenues and total variable costs. Finally, compare the contribution margin to the fixed costs to determine the break-even quantity.

Step-by-step explanation:

In order to prepare a contribution margin income statement at the break-even point, we need to understand the components of the contribution margin. The contribution margin is calculated by subtracting the variable costs from the selling price per unit. In this case, the selling price per unit is $184 and the variable costs per unit are $138. Therefore, the contribution margin per unit is $184 - $138 = $46.

At the break-even point, the total contribution margin should be equal to the total fixed costs. The fixed costs are given as $699,200. Since the contribution margin per unit is $46, the break-even quantity can be calculated by dividing the fixed costs by the contribution margin per unit: $699,200 ÷ $46 = 15,200 units.

To prepare the contribution margin income statement at the break-even point, we need to calculate the total revenues, total variable costs, contribution margin, and fixed costs. The total revenues can be calculated by multiplying the break-even quantity (15,200 units) by the selling price per unit ($184), which equals $2,796,800. Total variable costs can be calculated by multiplying the break-even quantity by the variable costs per unit, which equals $2,101,600 ($138 × 15,200). The contribution margin is the difference between the total revenues and total variable costs, which equals $695,200 ($2,796,800 - $2,101,600). Finally, the fixed costs are given as $699,200.

Contribution Margin Income Statement at Break-even Point

CategoryAmountTotal Revenues$2,796,800Total Variable Costs$2,101,600Contribution Margin$695,200Fixed Costs$699,200