Contribution Margin Concepts (LO3, 4)

The following information is taken from the 2012 records of Navajo Art Shop.

Fixed Variable _ Total SIGS Here ee oo oe $750,000 Costs Goods sold..... $337,500 LaOlem ferrets as: $160,000 60,000 Supplies ....... 2,000 5,000 NCS eea cc 12,000 13,000 ES (aa ee 24,000 ~

Advertising ..... 6,000 24,500 Miscellaneous. . . 6,000 10,000 Total costs ..... $210,000 $450,000 (660,000)

Net income....... $ 90,000

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Required

a. Determine the annual break-even dollar sales volume.

6. Determine the current margin of safety in dollars.

c. Prepare a cost-volume-profit graph for the art shop. Label both axes in dollars with maximum values of $1,000,000. Draw a vertical line on the graph for the current ($750,000) sales level, and label total variable costs, total fixed costs, and total profits at $750,000 sales.

d. What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $35,000? (p. 83)