Question

Gilley, Inc. sells a single product. Gilley's most recent income statement is given below:

          Sales (sold 4,000 units)                            $120,000

       - Variable costs:                                   

             Variable manufacturing costs                  (48,000)

             Variable selling and general costs           (20,000)

          Contribution margin                                    52,000

       - Fixed costs:                                        

             Fixed manufacturing costs                       (30,000)

             Fixed selling and general costs                (10,000)

          Operating income                                    $ 12,000

a. Contribution margin (CM) per unit is:                             $ __________ per unit

b. If sales are doubled to $240,000, total variable costs will equal: $ ____________

c. If sales are doubled to $240,000, total fixed costs will equal: $ ______________

d. If 10 more units are sold, profits will increase by:            $ _________________

e. How many units must be sold to break-even?                  ______________ units

f. How many units must be sold to achieve net income (after tax) of $15,000?

Assume income tax rate of 40%.                                    ______________ units

g. Compute the new “break-even point” in units if fixed manufacturing costs are increased by $10,000, and a target operating income is $18,000. ______________ units

Answer 1