Assume that you are part of the accounting team for Schallheim Computing. The company currently expects to sell 618 units for total revenue of $21,000 each month. Schallheim Computing estimates direct materials costs of $3,150, direct labor costs of $4,200, variable overhead costs of $2,100, and variable selling and administrative costs of $1,050. Fixed costs of $8,500 are also expected, which includes fixed overhead and selling and administrative costs. Using this information, complete the contribution margin income statement shown below.

Sales	$fill in the blank 5e8f2f06e038008_1
Less: Fixed costsLess: Variable costsLess: Variable costs	Less: Variable costs
Contribution marginGross marginContribution margin	$Contribution margin
Less: Fixed costsLess: Variable costsLess: Fixed costs	Less: Fixed costs
Operating income	$fill in the blank 5e8f2f06e038008_8

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Review the formula and structure of this statement from the first two steps above, and apply these values.

Recall that direct labor and direct materials are included with variable costs.

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Schallheim Computing is examining cost behavior patterns. Your recommendation is to first determine the break-even point in units. First, calculate thecontribution margin (CM) per unit(rounded to the nearest dollar). $fill in the blank e9b954f90027077_1

Next, complete the formula below to determine the break-even units.
Total Fixed Costs / Contribution Margin per Unit = Units
$fill in the blank e9b954f90027077_2/ $fill in the blank e9b954f90027077_3 = fill in the blank e9b954f90027077_4units

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Use the information from the prior step to calculate these values. The contribution margin per unit is simply the contribution margin from the statement above divided by the number of units sold.

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APPLY THE CONCEPTS: The Profit-Volume Graph

A profit-volume graph helps managers to visualize the relationship between profits and units sold. The data for Schallheim Computing has been used to construct the profit-volume graph below. The purple points (diamond symbols) plot theprofit line. The operating loss is the shaded area bordered by the red points (cross symbols). The operating profit is the area bounded by the green points (triangle symbols).

Choose the correct profit-volume graph for Schallheim Computing

ABCD

A.

B.

C.

D.

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Look for a chart that reflects the breakeven point you computed in the step above.

To figure out the "Y intercept" value (where X=0), look back at the Contribution Margin Income Statement in the prior step and figure out what Operating Income would be if both sales and variable costs were zero.

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APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs

Now consider each of the following scenarios for Schallheim Computing. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.

Scenario 1	Scenario 2	Scenario 3
After some extensive market research, Schallheim has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately.	Schallheim has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit.	Schallheim will dispose of a machine in the factory. The depreciation on that equipment is $500 per month.
CM per unit: $fill in the blank fadfe801c021faa_1	CM per unit: $fill in the blank fadfe801c021faa_2	CM per unit: $fill in the blank fadfe801c021faa_3
Break-even units:fill in the blank fadfe801c021faa_4 units	Break-even units:fill in the blank fadfe801c021faa_5 units	Break-even units:fill in the blank fadfe801c021faa_6 units