BREAK EVEN ANALYSIS
1.
Kramer Company anticipates for the coming year fixed costs and expenses of $250,000 and variable
costs and expenses equal to 30% of sales.
(a) Compute the anticipated break-even point.
(b) Compute the sales required to realize operating income (profit) of $50,000.
(c) Construct a break-even chart, assuming sales of $500,000 at full capacity.
(d) Determine the probable operating income (profit) if sales total $400,000.
2.
Friedman Company operated at full capacity during the past year. Fixed costs and expenses were
$275,000, variable costs and expenses were 40% of sales, and sales totaled $800,000. Management
proposed to expand plant capacity by 40%, which will increase fixed costs and expenses by $110,000
yearly but will not affect the ration of variable costs and expenses to sales.
(a) Compute the operating income under present conditions.
(b) Compute the break-even point under present and proposed conditions.
(c) Compute the sales necessary under proposed conditions to reach current operating income.
(d) Compute the maximum operating income under proposed conditions.
3.
If Reynolds Company, with a break-even point at $450,000 of sales, has actual sales of $600,000, what is
the margin of safety expressed (1) in dollars and (2) as a percentage of sales?
(a) If the margin of safety for Hayden Company was 20%, fixed costs and expenses were $195,000, and
variable costs and expenses were 35% of sales, what was the amount of actual sales?
4.
If Dugan Company budgets sales of $400,000, fixed costs and expenses of $225,000, and variable costs
and expenses of $140,000, what is the anticipated marginal income ratio?
(a) If the marginal income ratio for Fogarty Company is 60%, sales were $850,000, and fixed costs and
expenses were $425,000, what was the operating income?
5.
For the past year Ballard Company had sales of $750,000, a margin of safety of 30% and a marginal
income ratio of 40%.
(a) Compute the break-even point.
(b) Compute the variable costs and expenses.
(c) Compute the fixed costs and expenses.
(d) Compute the operating income.
ESSAY:
Discuss the representative status symbols at various stages in the life cycle.