Ivy Kay, Inc. makes one type of doggie sweater that it sells for $25 each. Its variable cost is $12.50 per sweater and its fixed costs total $8,600 per year. Ivy Kay currently has the capacity to produce up to 1,000 sweaters per year, so its relevant range is 0 to 1,000 sweaters.

Required:

1. Prepare a contribution margin income statement for Ivy Kay assuming it sells 600 sweaters this year.

2. Without any calculations, determine Ivy Kay’s total contribution margin if the company breaks even.

3. Calculate Ivy Kay’s contribution margin per unit and its contribution margin ratio.

4. Calculate Ivy Kay’s break-even point in number of units and in sales revenue.

5. Suppose Ivy Kay wants to earn $3,000 this year. Determine how many sweaters it must sell to generate this amount of profit. Is this possible?

6. Prepare a CVP graph for Ivy Kay including lines for both total cost and sales revenue. Clearly identify fixed cost and the break-even point on your graph.