Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $90 per unit. The company’s annual fixed costs are $432,000.
(1) Prepare a contribution margin income statement for Blanchard Company at the break-even point.
(2) Assume the company’s fixed costs increase by $129,000. What amount of sales (in dollars) is needed to break even?
Explanation:
| Break-even point in units = $432,000 / $30 = 14,400 units |
| Contribution margin ratio = $30 / $120 = 25% |
(1)
| Sales: (14,400 × $120) = $1,728,000 |
| Variable costs: (14,400 × $90) = $1,296,000 |
| Contribution margin: (14,400 × $30) = $432,000 |
(2)
| Sales (in dollars) to break even with increased fixed costs |
| | | (Original fixed costs + Additional fixed costs) |
| Break-even | = |
|
| | | Contribution margin ratio |
| | = | ($432,000 + $129,000) / 25% = $2,244,000 |
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