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6-7 Breakeven Income Statement

Revenues needed to breakeven	$1,100
Variable costs ($1,100 * .8)	880
Contribution margin (1,100 * .2)	220
Fixed costs	220
Pretax income	$0

Blacklands, Inc. sells one product for $10. The firm has $60 of fixed costs. Blacklands has variable costs of $4 per unit.

Required: Compute the breakeven point in sales revenue.

Contribution margin (sales revenue variable costs): ________$4_____

Contribution margin ratio (contribution margin/sales revenue): ________60%_____

Breakeven point in sales revenue (fixed costs/contribution margin ratio: ________100_____

6-10

Blacklands forecasts a profit of $90 based on the Exercise 6-7 data. The firm considers increasing the selling price to $12 per unit. In order to sell products for $12 and maintain the same level of unit sales, management would have to pay an additional $40 for an advertising campaign.

Required: Determine whether Blacklands should undertake the advertising campaign.

Current number of units required to reach $90 profit: ____________

Current Contribution Margin Income Statement

Revenues
Variable costs
Contribution margin
Fixed costs
Pretax income	$90

Proposed contribution margin: _____________

New total fixed costs: _____________

Proposed Contribution Margin Income Statement

Revenues
Variable costs
Contribution margin
Fixed costs
Pretax income