Use the Graphical Approach to CVP Analysis to Solve the Following

question 73

Short Answer

Use the graphical approach to CVP analysis to solve the following problem.
Valley Peat Ltd. sells peat moss for $10 per bag. Variable costs are $7.50 per bag and annual fixed costs are $100,000.
a) How many bags of peat must be sold to break even?
b) What will be the net income for a year in which 60,000 bags of peat are sold?
c) How many bags must be sold for a net income of $60,000 in a year?
d) What volume of sales would produce a loss of $10,000?

---

Definitions:

Perpetual Inventory System

It's a method in accounting where inventory sales and purchases are registered immediately using automated point-of-sale systems and enterprise asset management programs.

Credit Memo

A document issued by a seller to a buyer, reducing the amount owed by the buyer to the seller, typically due to a return or rebate.

Discount Period

The time period during which a debtor can pay less than the full amount owed to clear a debt, typically as an incentive for early payment.

Multiple-Step Income Statement

An intricate financial report that distinguishes between operating revenues and expenses and those that are non-operating in order to determine the net income.