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In 2015 Lin Company had sales of $2,500,000 with $1,250,000 variable and $900,000 fixed costs. In...

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In 2015 Lin Company had sales of {eq}\$2,500,000 {/eq} with {eq}\$1,250,000 {/eq} variable and {eq}\$900,000 {/eq} fixed costs. In 2016 sales are expected to decrease {eq}10 \% {/eq}, determine Lin Company's expected operating income or loss for 2016.

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis is a method of analysis in which effects on net operating income are determined by changes in costs and volume. Sales, variable costs and fixed costs are the three factors used in this analysis. It is widely used in determining break-even points in sales and in units.

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Answer: $225,000

Lin Company's expected operating income or loss for 2016 is computed as follows:

Sales ($2,500,000 * 90%) $2,250,000
Less:...

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Cost-Volume-Profit Analysis & Income Statements

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Chapter 8 / Lesson 3
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Cost-volume-profit analysis (CVP) seeks to better understand the relationship between costs, revenue, and volume of sales. Explore the components in these analyses, the assumptions they take, and see these through the CVP income statement.


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