EX 21-18 Profit-volume chart

Using the data for Loudermilk Inc. in Exercise 21-17, (a) determine the maximum possible operating loss, (b) compute the maximum possible operating profit, (c) construct a profit-volume chart, and (d) estimate the break-even sales (units) by using the profitvolume chart constructed in part (c).


Answer:

a. $600,000 (total fixed costs)

b. Sales (20,000 units × $125)……………………………… $2,500,000*
Fixed costs………………………………………………… $ 600,000
Variable costs (20,000 units × $75)…………………… 1,500,000 2,100,000
Income from operations…………………………………… $ 400,000
* 20,000 units = $2,500,000 maximum sales/$125 unit selling price



c. $400,000
$300,000
Profit Line
$200,000
$100,000
$0
Break-Even
Point Operating
Profit Area
($100,000)
($200,000)
Operating
Loss Area
($300,000)
($400,000)
($500,000)
($600,000)
0 5,000 10,000 12,000 15,000 20,000
Units of Sales







d. 12,000 units (the intersection of the profit line and the horizontal axis)