The cost accountant of Avengers Company has generated the income statement presented below for the fiscal year ending 31 December 2021. Avengers Company had sales of 1.800 tons of product during the year. The manufacturing capacity of Avengers Company is 3,000 tons of product.
Revenues
$900,000
Variable Costs: Manufacturing Non-manufacturing
Contribution Margin
$315,000
$180,000
$495.000
$405,000
Fixed Costs:
Manufacturing
Non-manufacturing
Operating Income
$90,000 $157.500
$247,500
$157,500
Income Taxes (40%) Net Income
$63,000
$94,500
You are required to:
a. Calculate break-even point (units) by using mathematical approach. Show your workings. (5 marks)
b. Using a graph paper provided, construct a break-even chart and indicate the break-even point. You are also required to show profit and loss segment on the graph. (15 marks)
c. If the sales volume of Avengers Company estimated to be 2.100 tons next year and the selling price and cost behavior remains the same, prepare a contribution income statement by indicating clearly contribution margin, operating income and net income. (10 marks)
d. Assuming the variable costs increase by $40 per ton and fixed costs remains unchanged, compute how many tons must be sold to earn a net income of $94,500. Show your workings. (5 marks)
e. Using the same assumptions in (d) and Avengers Company estimates the selling price per ton will decline by 10%, how many tons will be sold to earn a net income of $94,500? Show your workings. (5 marks)
f. Discuss three assumptions underlying cost-volume-profit analysis. You may use examples to support your answers. (5 marks)

Answer rating: 100% (QA)

a To calculate the breakeven point units we need to determine the sales volume at which the companys total revenue equals its total costs The breakeven point can be calculated using the formula Breake... View the full answer