em 16.38 CVP Analysis: Sales-Revenue Approach, Pricing. Approach, Pricing, After

Question

em 16.38 CVP Analysis: Sales-Revenue Approach, Pricing. Approach, Pricing, After-Tax Target Mahan Consulting is a service organization that specializes in the design, installation, a Income OBJECT ing o f mechanical, hydraulic, and p nd serv- neumatic systems. For example, some manufacturing firms, machinery that cannot be turned off for servicing, ne with the machinery during use. To deal with this type of problem for a client, Mahan designe tral lubricating system that pumps lubricants intermittently to bearings a ed some type of system to lubricate a cen The operating results for the firm for the previous year are as follows: nd other moving parts Sales Less: Variable expenses $974,880 534,234 $440,646 264,300 $176,346 Contribution margirn Less: Fixed expenses Operating income In the coming increase by 3 percent Required: I. What is the contribution margin ratio (rounded to three significant digits) for the previous year, Mahan expects variable costs to increase by 4 percent and fixed costs to year? Compute Mahan's break-even point for the previous year in dollars. Suppose that Mahan would like to see a 6 percent increase in operating income in the com- ing year. What percent (on average) must Mahan raise its bids to cover the expected cost increases and obtain the desired operating income? Assume that Mahan expects the same mix and volume of services in both years. In the coming year, how much revenue must be earned for Mahan to earn an after-tax profit of $175,000? Assume a tax rate of 40 percent. 2. 3. 4.

Explanation / Answer

Part 1

Contribution margin ratio = contribution margin / sales = 440646/974880 = 45.200%

Part 2

Breakeven point in dollars = fixed expenses / contribution margin ratio = 264300 / 45.200% = 584735

Part 3

The expected Operating Income = $186,926.76 (176346*1.06)

Add: Fixed Expense = 272,229 (264300*1.03)

The Expected Contribution Margin = $459,155.76

Contribution Margin Ratio = 43.008% ((974880-(534234*1.04))/974880)

The Expected Sales in dollars = $1,067,6045 (459155.76/43.008%)

The changed percentage = 9.511% ((1067605-974880)/974880)

Part 4

An after-tax profit = 175,000

The before tax profit = 291667 (175000/ (1-40%))

Add: Fixed Expenses = 272,229

The Expected Contribution Margin = 563,896

Contribution Margin Ratio 43.008% ((974880-(534234*1.04))/974880)) =

The Expected Sales in dollars = $1,311,142.11 = 1311142 (563896/43.008%)

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

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