Last year, Fifth Dimension Beauty Products Inc. had sales of $400,000, based on a unit selling price of $80. The variable cost per unit was $55, and fixed costs were $125,000. The maximum sales within Fifth Dimension’s relevant range are 10,000 units. Fifth Dimension is considering a proposal to spend an additional $40,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity.

Instructions

1. Construct a cost-volume-profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation.

2. Using the cost-volume-profit chart prepared in (1), determine

(a) The income from operations for last year

(b) The maximum income from operations that could have been realized during the year. Verify your answers arithmetically.

3. Construct a cost-volume-profit chart indicating the break-even sales for the current year, assuming that a noncancelable contract is signed for the additional billboard advertising. No changes are expected in the unit selling price or other costs.

Verify your answer, using the break-even equation.

4. Using the cost-volume-profit chart prepared in (3), determine

(a) The income from operations if sales total 8,000 units

(b) The maximum income from operations that could be realized during the year. Verify your answers arithmetically.

Instructions

1. Construct a cost-volume-profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation.

2. Using the cost-volume-profit chart prepared in (1), determine

(a) The income from operations for last year

(b) The maximum income from operations that could have been realized during the year. Verify your answers arithmetically.

3. Construct a cost-volume-profit chart indicating the break-even sales for the current year, assuming that a noncancelable contract is signed for the additional billboard advertising. No changes are expected in the unit selling price or other costs.

Verify your answer, using the break-even equation.

4. Using the cost-volume-profit chart prepared in (3), determine

(a) The income from operations if sales total 8,000 units

(b) The maximum income from operations that could be realized during the year. Verify your answers arithmetically.

Accounting

21st Edition

Authors: Carl s. warren, James m. reeve, Philip e. fess

ISBN: 978-0324188004

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