# Praveen Co. manufactures and markets a number of rope products. Management is considering the future of...

Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a \$280 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be \$414,400, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are \$168 per 100 yards of XT rope. 1. Estimate Product XT’s break-even point in terms of sales units and sales dollars. (1 unit = 100 yards) (Do not round intermediate calculations.)

2. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.

Contribution Margin per 100 yds. Contribution margin 0 Contribution Margin ratio Choose Numerator: I Choose Denominator: = Contribution Margin Ratio Contribution margin ratio 1(a) Estimate Product XT's break-even point in terms of sales units. (1 unit = 100 yards) Choose Numerator: Choose Denominator: Break-Even Units Break-even units II
1(b) Estimate Product XT's break-even point in terms of sales dollars. Choose Numerator: 1 Choose Denominator: Break-Even Dollars Break-even dollars
PRAVEEN CO. Contribution Margin Income Statement (at Break-Even) — Product XT \$ per unit Total Units Contribution margin

 Contribution Margin per 100 yds. Sales 280 Less: Variable cost 168 Contribution margin 112 Contribution Margin ratio Choose Numerator: / Choose Denominator: = Contribution Margin Ratio CM per unit / Sales per unit = Contribution margin ratio 112 / 280 = 40% 1(a) Estimate Product XT’s break-even point in terms of sales units. (1 unit = 100 yards) Choose Numerator: / Choose Denominator: = Break-Even Units Fixed costs / Contribution margin per unit = Break-even units 414400 / 112 = 3700 units 1(b) Estimate Product XT’s break-even point in terms of sales dollars. Choose Numerator: / Choose Denominator: = Break-Even Dollars Fixed costs / Contribution margin ratio = Break-even dollars 414400 / 40% = 1036000 2 PRAVEEN CO. Contribution Margin Income Statement (at Break-Even) — Product XT Units \$ per unit Total Sales 3,700 280 1036000 Less: Variable cost 3,700 168 621600 Contribution margin 3,700 112 414400 Less: Fixed costs 414400 Net income 0
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