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Chapter 20: Q19RQ (page 1119)

On the CVP graph, where is the breakeven point shown? Why?

Short Answer

Expert verified

Answer

On the CVP graph, the breakeven point is the point where the line of sales revenue and total costs intersects.

Step by step solution

01

Step 1:Break-even point

The point where the entity is neither a profit nor not at a loss is known as the breakeven point.

02

Reasoning

The point where the line of sales revenue and total costs intersects is known as the breakeven point because at this level of sales; the operating profit is zero means total sales are equal to the total cost.

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Most popular questions from this chapter

Question: Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are \(170,800 per month.

Using the Funday Park information presented, do the following tasks.

Requirements

1. Suppose Funday Park cuts its ticket price from \)70 to \(56 to increase the number of tickets sold. Compute the new breakeven point in tickets and in sales dollars.

2. Ignore the information in Requirement 1. Instead, assume that Funday Park increases the variable cost from \)42 to $56 per ticket. Compute the new breakeven point in tickets and in sales dollars.

Question: What is target profit?

How does a contribution margin income statement differ from a traditional income statement?

The Circle Clock Company sells a particular clock for \(25. The variable costs are \)13 per clock and the breakeven point is 250 clocks. The company expects to sell 300 clocks this year. If the company actually sells 400 clocks, what effect would the sale of additional 100 clocks have on operating income? Explain your answer.

Why is the calculation to determine the target profit considered a variation of the breakeven calculation?
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