Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 52

CVP Analysis Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for 2010 as follows:

Sales		$46,000,000
Operating expenses
Variable expenses	$32,200,000
Fixed expenses	7,500,000
Total expenses		39,700,000
Operating Profit		$ 6,300,000

Required

1. Determine the breakeven point in sales dollars.

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2. Determine the required sales in dollars to earn a before-tax profit of $7,250,000.

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3. What is the breakeven point in sales dollars if the variable cost increases by 10 percent?

Step 1 of 4

The breakeven point is a point where predicted revenue is equivalent to the estimated full costs. It is the no of units output sold at which full revenue is equivalent to full cost. It is a point where there is no profit or loss. It is the quantity that the company must sell to avoid losses. Break-even revenue is equal to Fixed cost divided by the contribution margin ratio.