Lopez Corporation has collected the following information after its first year o

Question

Lopez Corporation has collected the following information after its first year of sales. Net sales were $1,600,000 on 100,000 units; selling expenses $240,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $285,000; administrative expenses $280,000 (20% variable and 80% fixed); manufacturing overhead $360,000 (70% variable and 30%). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Instructions a. Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) b. Compute the break-even point in units and sales dollar for the current year.

Explanation / Answer

Hi, Please find the calculations as follows: Sales: 1600000 Variable Cost: DM: 511000 DL: 285000 MO: 360000 *.70 = 252000 Contribution for the current year = 1600000 - 511000 - 285000 - 252000 = 552000 Sales (100000 + 10000) * 16 = 1760000 Variable Cost: DM: (110000*5.11) = 562100 DL: (110000*2.85) = 313500 MO: (110000*2.52) = 277200 Contribution for the projected year = 1760000 - 562100 - 313500 - 277200 = 607200 Fixed Cost for the Current Year = 240000*.60 + 280000*.80 + 360000*.30 = 476000 Break Even Point = 476000/552000/1600000 = 476000/34.5 = 1379710.15 (Sales Value) Break Even Point in Units = 476000/(16-5.11-2.85-2.52) = 86231.88406 or 86232 Thanks, Aman

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