(Formula; graph; income statement) Pittsburg Tar Co. had the following income statement for 2010:
|
Sales (30,000 gallons × $8) |
|
$240,000 |
|
Variable cost |
|
|
|
Production (40,000 gallons × $3) |
$120,000 |
|
|
Selling (30,000 gallons × $0.50) |
15,000 |
(135,000) |
|
Contribution margin |
|
$105,000 |
|
Fixed cost |
|
|
|
Production |
$ 46,000 |
|
|
Selling and administrative |
6,200 |
(52,200) |
|
Income before tax |
|
$ 52,800 |
|
Income tax (40%) |
|
(21,120) |
|
Net income |
$ 31,680 |
a. Compute the break even point using the equation approach.
b. Prepare a CVP graph to reflect the relationships among cost, revenue, profit, and volume.
c. Prepare a profit volume graph.
d. Prepare a short explanation for company management about each of the graphs.
e. Prepare an income statement at break even point using variable costing.