Question
Although business was off to a good start in January, Annabelle realized that she will need to be profitable to continue as a viable business.
Although business was off to a good start in January, Annabelle realized that she will need to be profitable to continue as a viable business. Annabelle discussed the subject of profitability with her accountant who suggested that she first needs to determine her breakeven point in both unit sales and dollars. He explained to her that breakeven is the point where all costs are covered by sales and so, profit is equal to zero. He also suggested that the company should establish a monthly target profitability to determine the amount of cakes it would need to sell to achieve this level. Since Annabelle did not know how to perform this calculation and to save money, she asked you to calculate the companys breakeven point and the target sales need to achieve a monthly profit of $500. Required: Calculate Annabelles Bakerys breakeven point in both units and sales dollars. Also, calculate the sales needed to achieve a monthly profit of $500. 1. Using the Excel template provided, prepare a contribution margin format income statement. Use your cost classification chart from Task 1 to aid you in determining your fixed and variable costs. Using the contribution format income statement, determine the breakeven point and target profit as required above.
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