Posted: August 9th, 2016

Break-Even and Target Profit

Nolan Estevez started his company, The Sign of Things to Come, three years ago after graduating from Eastend College. While earning his engineering degree, Nolan became intrigued by all of the neon signs he saw at bars and taverns around the university. Few of his friends were surprised to see him start a neon sign company after leaving school. Nolan is currently considering the introduction of a new custom neon sign that he believes will sell like hot cakes. In fact, he is estimating that the company will sell 600 of the signs. The new signs are expected to sell for $80 and require variable costs of $20. The new signs will require a $35,000 investment in new equipment.

A. How many new signs must be sold to break even?

B. How many new signs must be sold to earn a profit of $18,000? before taxes

C. If 600 new signs are sold, how much profit will they generate, before taxes?

D. What would be the break-even point if the sales price decreased by 21 percent? Round your answer to the next-highest number.

E. What would be the break-even point if variable costs per sign decreased by 33 percent?

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.

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