Chapter 3 CVP Additional Questions Question 1 ABC Steel, Inc., manufactures furn

Question

Chapter 3 CVP Additional Questions Question 1 ABC Steel, Inc., manufactures furnace air filters that sell for $1,000. The unit costs are: Direct material Direct labour Variable manufacturing overhead Variable selling expense S375 250 130 45 Annual fixed manufacturing overhead is S100,000 and fixed selling and administrative expenses are $120,000. The company is in a 30% tax bracket. Required: a. What is the break-even in units and in sale? b. Determine how many furnace air filters the company needs to make and sell to earn S140,000 in after-tax profit. c. What is the margin of safety at this sales level? d. What is the degree of operating leverage? e. What sales level will result in the company having an after-tax profit of $1,400,000? Compare your answer with

Explanation / Answer

Requirement a CVP Analysis Amount in $ Sales 1000 Less : Variable costs Direct materials 375 Direct Labor 250 Variable manufacturing overhead 130 Variable selling overhead 45 Total Variable costs per unit 800 Contribution margin 200 Breakeven in units = fixed costs/contribution margin =(100000+120000)/200 1100 Breakeven in sale =breakeven in units * Selling price =1100*1000 1100000 Requirement b After tax profit 140000 Before tax profit=140000*100/70 200000 Add : fixd manufacutring overhead 100000 Add : Fixed selling and administrative expenses 120000 Total contribution required 420000 Contribution per unit 200 Number of Filters needs to make and sell 2100 units In sale =2100*1000 2100000 Requirement c Margin of safety at this level is 1000 units =(actual sales-Breakeven sales) Margin of safety in % 47.62 % Requirement d Degree of Operating leverage =Total contribution/operating income =420000/200000 2.1 Requirement e =sales level to generate after tax profit of 1400000 Add : Tax 600000 Operating Income 2000000 Add : Fixed costs 220000 Contribution Margin 2220000 Contribution margin per unit 200 Number of filters needs to make and sell 11100 in Sale =11100*1000 11100000 in sale in requirement b 2100000

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.