Ajack, using the marginal costing income statement, reports the following for sales of 100,000 units: Sales .......

Question:

Ajack, using the marginal costing income statement, reports the following for sales of 100,000 units:

Sales ....... $750,000

Variable costs ..... $400,000

Fixed costs ...... $210,000

Net income ...... $140,000

(a) Determine the break-even point in units for Ajack.

(b) Assume that Ajack intends to have a profit of 20% more than the current profit. How many units must he sell to achieve his target?

(c) Ajack believes that the company could increase sales by 8,000 units. However, this will increase fixed costs by $22,000. What will be Ajack’s estimated income in this situation? Does the profit increase or decrease?

(d) What will the company’s new break-even point, assuming that Ajack’s fixed costs increase by $22,000?

(e) What is Contribution margin and how can it be expressed?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...