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An income statement for James & Justice Enterprises is presented below: Compute the break-even in...

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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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