Friday, 13 February 2015

Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $90 per unit. The company’s annual fixed costs are $432,000. (1) Prepare a contribution margin income statement for Blanchard Company at the break-even point.


Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $90 per unit. The company’s annual fixed costs are $432,000.

(1) Prepare a contribution margin income statement for Blanchard Company at the break-even point.
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Explanation:(1) 
Sales: (14,400 × $120) = 1,728,000
Variable costs: (14,400 × $90) = 1,296,000
Contribution margin: (14,400 × $30) = 432,000

(2)
Sales (in dollars) to break even with increased fixed costs

(Original fixed costs + Additional fixed costs)
Break-even  =
Contribution margin ratio

 =  ($432,000 + $129,000) / 25% = $2,244,000