Mastery Problem: Break-Even Point in Units and the Prot-Volume Graph CVP and the Contribution Margin Income Statement For planning and control purposes, managers have a powerful tool known as cost-volume-prot (CVP) analysis. CVP shows how revenues, expenses, and prots behave as volume changes. In CVP analysis, costs are classified according to behavior: variable or fixed. To arrive at operating income in CVP analysis, costs are classied by behavior on the income statement. This format is known as the contribution margin income statement. Complete the following table to illustrate the format. Contribution Magin lnoome Statement Sals $XXX ' w v $XXX ' Operating inoo me $ XXX CVP and the Break-Even Point Review the following concepts about CVP analysis and the break-even point and then complete the related statements. Concept Statement 1. At the break-even point, It is important to understand contribution margin because it is used to determine the operating income is break-even point, which can help predict the success of a new venture or product. V At the break-even point, Contribution margin is the amount available to cover fixed costs. The CVP formula contribution margin is can be restated to reect this. v 3. Managers analyze how changes in costs and selling prices will affect contribution when contribution margin and, therefore, the break-even point. An increase in selling price or a margin increases, the decrease in variable costs will cause the contribution margin to increase, providing break-even point will more than enough to cover fixed costs. V 4. When contribution Likewise, if selling price decreases or variable costs increase, contribution margin will margin decreases, the decrease and be less than fixed costs. break-even point will Y 5. Any changes to fixed costs will affect the amount of contribution margin needed to If xed costs increase, cover fixed costs. the break-even point will v If xed costs decrease, the breakeven point will V Kolbe Computing Contribution Ma in Inoome Statement Sam Operating inoome # The breakeven point can be expressed in terms of sales dollars or number of units. The break-even units tells us how many units must be sold so that operating income is $0. Kolbe Computing is examining cost behavior patterns. Your recommendation is to rst determine the break-even point in units. Calculate the contribution margin (CM) per unit. $[:] Next, complete the formula to the $:] right to determine the break-even units. $:]