Decision Focus: Break- Even and Target Profit LO1, 2, 3, 4

ZIA Motors is a small automobile manufacturer. Chris Rickard, the companys president, is currently evaluating the companys performance and is con-sidering options that might be effective at increas-ing ZIAs profitability.

The companys controller, Holly Smith, has prepared the following cost and expense estimates for next year, on the basis of a sales forecast of $ 3,000,000: Direct materials $ 800,000 Direct labor 700,000 Factory overhead 750,000 Selling expenses 300,000 Other administrative expenses 100,000 $ 2,650,000 After Chris received and reviewed variable, but other administrative expenses are 30 percent variable.

A. How much revenue must ZIA generate to break even?

B. Chris Rickard has set a target profit of $ 700,000 for next year. How much revenue must ZIA gener-ate to achieve Chriss goal?