An income statement for James & Justice Enterprises is presented below: Compute the break-even in...
Question:
An income statement for James & Justice Enterprises is presented below:
| James&Justice Enterprises | ||
|---|---|---|
| Income Statement | ||
| For the year Ended january 31,2016 | ||
| Sales(300,000 units) | $1,800,000 | |
| variable expenses: | ||
| Cost of goods sold | $900,000 | |
| Selling expenses | $225,000 | |
| Administrative expense | $150,000 | $1,275,000 |
| Contribution margin | $525,000 | |
| Fixed costs: | ||
| Cost of goods sold | 300,000 | |
| Selling expenses | 242,400 | |
| Administrative expense | 100,000 | 642,400 |
| Net loss | ($117,400) | |
1. Compute the break-even in total sales dollars and in units for 2016.
2. Justice has proposed a plan to get the enterprise on a profitable level. He proposes to improve the quality of the product by spending $0.30 more on raw materials. The selling price per unit would be increased to $0.35. The sales volume would increase by 25%. How would this proposal affect profits and break-even in dollars?
3. James wants to improve profits via marketing, i.e., advertising and promotions. His plan is to increase selling expense by $0.15, lower the selling price by $0.35 per unit, and increase fixed selling expenses by $40,000. More importantly, James believes the sales volume would increase by 60% if these changes are made.
How would James' proposal affect profits and break-even in dollars?
Break-Even Analysis:
Break-even analysis is an important accounting tool that determines the level of sales and units that a company must achieve to cover all fixed costs. Break-even can be modified to determine the desired profit level or debt obligations.
Answer and Explanation: 1
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To calculate break-even a company must develop a contribution margin income statement. Break-even in units is calculated by dividing total fixed...
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How to Calculate the Break-Even Point - Definition & Formula
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Chapter 5 / Lesson 28
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See how to calculate break-even point (in units and dollars). See the variables of the break-even point formula and examples. Understand the purpose of break-even analysis.
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