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 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
First, we need to calculate the fixed cost:
Fixed cost = Contribution margin - Operating loss
Fixed cost = ($60,500 * 18%) - (-$7,700)
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fromChapter 5 / Lesson 28
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.