(Formula; graph; income statement) Pittsburg Tar Co. had the following income statement for...

Question

(Formula; graph; income statement) Pittsburg Tar Co. had the following income statement for 2010:




Sales (30,000 gallons × $8)





$240,000




Variable cost










Production (40,000 gallons × $3)


$120,000







Selling (30,000 gallons × $0.50)


15,000


(135,000)




Contribution margin





$105,000




Fixed cost










Production


$ 46,000







Selling and administrative


6,200


(52,200)




Income before tax





$ 52,800




Income tax (40%)





(21,120)




Net income





$ 31,680




a. Compute the break-even point using the equation approach.
b. Prepare a CVP graph to reflect the relationships among cost, revenue, profit, and volume.
c. Prepare a profit-volume graph.
d. Prepare a short explanation for company management about each of the graphs.
e. Prepare an income statement at break-even point using variable costing.

Robert · Accepted Answer

a.  The break-even point is the point at which total revenue equals total cost. 
Fixed costs ÷ Contribution margin = Break-even point 
$52,200 ÷ ($8  $3.50) = $52,200 ÷ $4.50 = 11,600 units or $92,800 in revenue 
 
b.  
 
 
c. Break-even point 
 
 
d. Graph (b) demonstrates how total costs and total revenues change as volume changes.

(Formula; graph; income statement) Pittsburg Tar Co. had the following income statement for 2010: Sales (30,000 gallons × $8) $240,000 Variable cost Production (40,000 gallons × $3) $120,000 Selling...

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Sales (30,000 gallons × $8)		$240,000
Variable cost
Production (40,000 gallons × $3)	$120,000
Selling (30,000 gallons × $0.50)	15,000	(135,000)
Contribution margin		$105,000
Fixed cost
Production	$ 46,000
Selling and administrative	6,200	(52,200)
Income before tax		$ 52,800
Income tax (40%)		(21,120)
Net income		$ 31,680