Question:
(Formula; graph; income statement) Pittsburg Tar Co. had the following income statement for 2010:
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Sales (30,000 gallons × $8)
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$240,000
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Variable cost
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|
|
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Production (40,000 gallons × $3)
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$120,000
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|
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Selling (30,000 gallons × $0.50)
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15,000
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(135,000)
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Contribution margin
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$105,000
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Fixed cost
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|
|
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Production
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$ 46,000
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|
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Selling and administrative
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6,200
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(52,200)
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Income before tax
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$ 52,800
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Income tax (40%)
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(21,120)
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Net income
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$ 31,680
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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.