Contribution Margin Concepts

The following information is taken from the 2013 records of Cherokee Jewelry Shop

	Fixed	Variable	Total
Sales cost			$750,000
Goods sold		$337,000
Labor	$160,000	60,000
Supplies	2,000	5,000
Utilities	12,000	13,000
Rent	24,000	-----
Advertising	6,000	24,5000
Miscellenious	6,000	10,000
Total cost	$210,000	$450,000	(660,000)
Net Income			$90,000

Required

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

b. Determine the current margin of safety in dollars.

c. Prepare a cost-volume-profit graph for the jewelry shop. Label both axes in dollars with maxi-

mum 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 in-

creases fixed costs by $35,000?