The Sock Company buys hiking socks for $6 per pair and sells them for $10. Management budgets monthly fixed costs of $10,000 for sales volumes between 0 and 12,000 pairs of socks. Read the requirements Requirement 1. Use both the equation approach and the contribution margin approach to compute the company's monthly breakeven point in units. HINT: Start with Net sales revenue. First, select the formula to compute the company's monthly breakeven point in units using the equation approach. Target profit Rearrange the formula you determined above and compute the breakeven point in units. The number of units needed to break even is Now select the labels and enter the amounts to find the breakeven point in units using the contribution margin approach. HINT: Breaking even implies a target profit of O. (Enter a "0" for any zero amounts. Abbreviation used: CM = contribution margin.) Required sales in units Requirement 2. Use the contribution margin ratio approach to compute the breakeven point in sales dollars. HINT: Breaking even implies a target profit of 0. Begin by selecting the formula, then enter the amounts and compute the breakeven point in sales dollars. (Enter a "O" for any zero amounts.) = Required sales in dollars Requirement 3. Compute the monthly sales level (in units) required to earn a target operating income of $6,000. Use either the equation approach or the contribution margin approach. The number of units required to earn a target operating income of $6,000 is (After you hit continue, the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step.) Requirement 4. Prepare a graph of The Sock Company's CVP relationships. Draw the sales revenue line, the fixed cost line, and the total cost line. Label the axes, the breakeven point, the operating income area, and the operating loss area. Begin by plotting and labeling the breakeven point, and plotting and labeling the lines for sales revenue, fixed costs, and total costs. When plotting each line, use the points where the sale volume in units is equal to zero, and where the sales volume in units is equal to the breakeven point. (Enlarge the graph to medium size and use the point tool and line tool buttons displayed below to draw the graph. Click the "???" to select a label for the breakeven point and for each of the lines.) $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5.000 SO 0 1,000 2,000 3,000 4,000 5,000 Units Click to enlarge graph Now select the graph that has the correct shaded areas and labels for the operating loss area and the operating income area. (Enlarge each graph before selecting your answer.) OA. . O C. OD. as 0082 $49.2007 $300perating Loss $25.000 $20.000 8 313: 8047 operating Incomez $10.000 $5,000 SO 0.0.08000,00,000 Units $40.000 $35.000. soperating Income $25.000 $20.000 $15.0084 Operating Lossz $10.000 5.000- SO ATT 0.02.000,00,000 Units $40.000 beraung Income a $25.000 $20.000 $75.000 Operating Loss $10.000 $5,000- SO 0.00.000,00.000 Units $40 soperating Income $25.000 $20.000 $15.0004 operating Loss $10.000 $5,000- SO 0.02.000,00,000 Units 00
