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Presented here is the income statement for Big Surf, Inc. for the month of May. Sales = $60,500...

Question:

Presented here is the income statement for Big Surf, Inc. for the month of May.

Sales = $60,500

Cost of goods sold = $52,500

Gross profit = $8,000

Operating expenses = $15,700

Operating loss = ($7,700)

Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 18%.

a. Rearrange the preceding income statement to the contribution margin format.

b. If sales increase by 10%, what will be the firm's operating income (or loss)?

c. Calculate the amount of revenue required for Big Surf, Inc. to break even.

Break-Even Sales:

Break-even sales are the number of units to be sold in order to cover all the expenses of the company. At the break-even sales level, the net profit of the company is always zero. It can be considered a minimum amount of sales to achieve by the company to prevent loss.

Answer and Explanation: 1

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a:

First, we need to calculate the fixed cost:

Fixed cost = Contribution margin - Operating loss

Fixed cost = ($60,500 * 18%) - (-$7,700)

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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