Posted: August 9th, 2016

# Compute the break-even point in units ?

F. What would be the break-even point if the additional fixed costs were \$50,800 rather than \$35,000?

CVP: What-If Analysis

Last year, Mayes Company had a contribution margin of 30 percent. This year, fixed expenses are expected to remain at \$123,000 and sales are expected to be \$590,000, which is 18 percent higher than last year.

What must the contribution margin ratio be if the company wants to increase net income by \$15,000 this year?

Sales to Reach After-Tax Profit

Securit Enterprises currently sells its padlocks for \$20 each. The locks have a variable cost of \$10, and the company’s annual fixed costs are \$150,000. The company’s tax rate is 38 percent.

Calculate the number of locks that must be sold to earn an after-tax profit of \$22,000.

CVP: What-If Analysis

Red Rock, Inc. mines and distributes various types of rocks. Most of the company’s rock is sold to contractors who use the product in highway construction projects. Aracely Hudson, company president, believes that the company needs to advertise to increase sales. She has proposed plan to the other managers that Red Rock, Inc. spend \$120,000 on a targeted advertising campaign. The company currently sells 27,000 tons of aggregate for total revenue of \$5,010,000. Other data related to the company’s production and operational costs follow:

Direct labor \$1,540,000

Variable 53,000
Fixed 327,000

A. Compute the break-even point in units (i.e., tons) for Red Rock, Inc.

B. Compute the contribution margin ratio for Red Rock, Inc.

C. If Aracely decides to spend \$100,000 on advertising and the company expects the advertising to increase sales by \$200,000, should the company increase the advertising?

If the company increases the advertising, the contribution margin will — by \$ — and net income will — by \$—

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