Question

Exercise 18-11 Income reporting and break-even analysis LO P2 Blanchard Company manufactures a single product that sells for $104 per unit and whose total variable costs are $78 per unit The company's annual fixed costs are $369,200. (1) Prepare a contribution margin income statement for Blanchard Company showing sales, variable costs, and fixed costs at the break-even point. (2) Assume the company's fixed costs increase by $127,000. What amount of sales (in dollars) is needed to break even? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a contribution margin income statement for Blanchard Company showing sales, variable costs, and fixed costs at the break-even point BLANCHARD COMPANY Contribution Margin Income Statement (at Break-Even) Percentage of sales Amount 0% $ 0

Answer 1

Answer to Requirement 1:

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $104 - $78
Contribution Margin per unit = $26

Breakeven Point = Fixed Expenses / Contribution Margin per unit
Breakeven Point = $369,200 / $26
Breakeven Point = 14,200 units

BLANCHARD COMPANY Contribution Margin Income Statement (at Break-Even) Amount % of Sales Sales (14,200 * $104) 1476800 100% Variable expenses (14,200 * $78) 110 7600 75% Contribution margin 369200 25% Fixed expenses 369200 Net operating income

Answer to Requirement 2:

Fixed Expenses = $369,200 + $127,000
Fixed Expenses = $496,200

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $26 / $104
Contribution Margin Ratio = 25%

Breakeven Sales = Fixed Expenses / Contribution Margin Ratio
Breakeven Sales = $496,200 / 0.25
Breakeven Sales = $1,984,800