Question

EB5.

LO 3.2Cadre, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90. The company’s monthly fixed expenses are $180,000.

What is the company’s break-even point in units?
What is the company’s break-even point in dollars?
Prepare a contribution margin income statement for the month of October when they will sell 10,000 units.
How many units will Cadre need to sell in order to realize a target profit of $300,000?
What dollar sales will Cadre need to generate in order to realize a target profit of $300,000?
Construct a contribution margin income statement for the month of August that reflects $2,400,000 in sales revenue for Cadre, Inc.

Answer 1

The break-even point in units for Cadre, Inc. is 6,000, and in dollars, it is $720,000. To achieve a target profit of $300,000, Cadre must sell 16,000 units, generating sales of $1,920,000. The income statements will vary depending on the scenario with the given parameters.

Step-by-step explanation:

To calculate the company's break-even point in units, we need to divide the fixed expenses by the contribution margin per unit. The contribution margin per unit is the selling price minus the variable costs. In this case, the break-even point in units can be computed as $180,000 / ($120 - $90), which is 6,000 units.

The break-even point in dollars is the break-even point in units multiplied by the selling price per unit. This equals 6,000 units * $120, giving us $720,000.

For the contribution margin income statement for October, the total sales are 10,000 units * $120, resulting in $1,200,000 in sales revenue. The total variable costs are 10,000 units * $90, equaling $900,000. The fixed expenses remain at $180,000. Subtracting both variable costs and fixed expenses from total sales revenue, we find $120,000 in operating income.

To achieve a target profit of $300,000, we need to add the target profit to the fixed expenses and then divide by the contribution margin per unit. This gives us ($300,000 + $180,000) / ($120 - $90) which equals 16,000 units.

The dollar sales needed for a target profit of $300,000 is the target profit units sold multiplied by the selling price. Thus, 16,000 units * $120 amounts to $1,920,000.

Finally, a contribution margin income statement for August with $2,400,000 in sales revenue would show the sales revenue of $2,400,000, variable costs of ($2,400,000 / $120) * $90, fixed expenses of $180,000, and the remainder being operating income.

Answer 2

1. Break-even in units is 6,000 units

2. Break-even in dollars is $720,000

3. Contribution Income Statement for 10,000 units

Sales revenue (10,000 x 120) $1,200,000

Variable cost (10,000 x 90) (900,000)

Contribution margin $300,000

Fixed cost (180,000)

Profit $120,000

4. Units to sell is 16,000

5. Dollars sale is $1,920,000

6. Contribution Income Statement for $2,400,000 sales revenue

Sales revenue (20,000 x 120) $2,400,000

Variable cost (120,000 x 90) (1,800,000)

Contribution margin $600,000

Fixed cost (180,000)

Profit $420,000

Step-by-step explanation:

1. To compute the Break-even point in units,

Formula is BEP = total fixed cost / unit contribution margin

Step 1. Compute the unit contribution margin

Unit selling price $120

Less : variable cost 90

Unit contribution margin $30

Step 2. compute the unit break-even in units using the formula.

BEP = total fixed cost / unit contribution margin

BEP = $180,000 / 30

BEP = 6,000 units

2. To compute the Break-even point in dollars,

Formula is BES = total fixed cost / contribution margin ratio

Step 1. Compute the contribution margin ratio

Unit selling price $120

Less : variable cost 90

Unit contribution margin $30

So, $30 divided by $120 equals 25% (CMR)

Step 2. compute the unit break-even in dollars using the formula.

BEP = total fixed cost / contribution margin ratio

BEP = $180,000 / 25%

BEP = $720,000

3. To prepare the contribution margin income statement, we will multiply the units sold of 10,000 units by $120 to get the sales revenue. Then multiply 10,000 units by $90 to get the variable cost. Further illustration below;

Sales revenue (10,000 x 120) $1,200,000

Variable cost (10,000 x 90) (900,000)

Contribution margin $300,000

Fixed cost (180,000)

Profit $120,000

4. To compute the units to sell to realize the target profit we will use the formula:

(Total fixed cost + Target profit )/ unit contribution margin

Step 1. Compute the unit contribution margin

Unit selling price $120

Less : variable cost 90

Unit contribution margin $30

Step 2. compute the units to sell using the formula.

(Total fixed cost + target profit) / unit contribution margin

($180,000 + $300,000) / 30

Answer is 16,000 units

5. To compute the sales in dollars to realize the target profit of $300,000,

Formula is (Total fixed cost + target profit) / contribution margin ratio

Step 1. Compute the contribution margin ratio

Unit selling price $120

Less : variable cost 90

Unit contribution margin $30

So, $30 divided by $120 equals 25% (CMR)

Step 2. compute the target sales in dollars using the formula.

(Total fixed cost + target profit) / contribution margin ratio

($180,000 + $300,000) / 25%

$480,000 / 25%

Answer is $1,920,000

6. Contribution Income Statement for $2,400,000 sales revenue. FIRST we must determine how many unit are sold to have that sales revenue. $2,400,000 sales revenue divided by unit selling price equals 20,000 units. To further illustrate, see presentation below.

$2,400,000 / $120 = 20,000 units

Sales revenue (20,000 x 120) $2,400,000

Variable cost (120,000 x 90) (1,800,000)

Contribution margin $600,000

Fixed cost (180,000)

Profit $420,000