Break-even and other CVP analysis Hodge and Best manufactures a single product. The information that follows relates to current operations: SALES (80,000 units @ $21)

Break-even and other CVP analysis Hodge and Best manufactures a single product. The information that follows relates to current operations: SALES (80,000 units @ $21) $1,200,000 Less: Variable cost $720,000 Fixed cost $360,000 $1,080,000 Net income $120,000 Instructions a The sales outlook for next year is bleak. Calculate the number of units that must be sold to break even if current revenue and cost behavior patterns continue. b If Hodge and Best wishes to earn a target income of $90,000 during the next accounting period, what level of dollar sales must be generated? c Management is studying an increase in the selling price to $21 per unit. If consumers balk and volume drops, calculate the number of units that must be sold to earn the target income of $90,000. Should the change be implemented? Why? d Hodge and Best’s projected break-even point and target income are the result of interactions of numerous financial events and transactions. Determine the impact of the following operating changes by filling in the blanks below with “increase,” “decrease,” or “not affect.” • 1) An increase in direct labor cost will _______________________ total variable costs, _______________________ the contribution margin, and _______________________ the break-even point. • 2) An increase in plant insurance will _______________________ the break-even point and _______________________ the dollar sales level calculated in part (b). a. Calculate break even in units b. Target sales to earn profit of $90,000 c. Increase in the selling price to $18 per unit calculate break even with a profit of $90000 d. Complete the blanks below with “increase,” “decrease,” or “not affect.” 1) An increase in direct labor cost will: total variable costs, contribution margin break even point 2) An increase in plant insurance will: break even point dollar sales level calculated in part (b).

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