CVP question The Young Manufacturing Company produces the following three produc

Question

CVP question

The Young Manufacturing Company produces the following three products: Fixed costs are $76,000 per year. Fifty percent of all sales in units are hammers, 30 percent are screwdrivers, and 20 percent are saws. Required: Calculate the breakeven point in total number of packages. Calculate the number of hammers that will be sold at breakeven. Calculate total dollar sales to obtain an operating income of $19,000. Prepare a contribution margin income statement, including a column for each product and a column for the company as a whole based on a target operating income of $19,000.

Explanation / Answer

A)

Combined Contribution Margin per unit = Hammer Contribution Margin *Weight of hammer +  Screwdriver Contribution Margin *Weight of Screwdriver +  Saws Contribution Margin *Weight of Saws

Combined Contribution Margin per unit = 12*50% + 4*30% + 20*20%

Combined Contribution Margin per unit = 11.20

Break Even Point = Total Fixed Cost/Combined Contribution Margin per unit

Break Even Point = 76000/11.20

Break Even Point = 6786 Package

B) Number of Hammer to be sold at Break Even = Total Break Even Point*Weight of Hammer

Number of Hammer to be sold at Break Even = 6786*50%

Number of Hammer to be sold at Break Even = 3393

C)

Combined Contribution Margin ratio = Hammer Contribution Margin ratio *Weight of hammer +  Screwdriver Contribution Margin ratio *Weight of Screwdriver +  Saws Contribution Margin ratio *Weight of Saws

Combined Contribution Margin ratio = 12/40*50% + 4/16*30% + 20/50*20%

Combined Contribution Margin ratio = 30.50%

Total Dollar sale to obtain operating income of $ 19000 = (Total Fixed Cost+operating income)/Combined Contribution Margin ratio

Total Dollar sale to obtain operating income of $ 19000 = (76000+19000)/30.50%

Total Dollar sale to obtain operating income of $ 19000 = $ 311,475.41

D)

Hammer Screwdriver Saw Total Sale          155,738            93,443          62,295          311,476 Variable cost          109,017            70,082          37,377          216,476 Contribution Margin            46,721            23,361          24,918            95,000 Fixed Cost            76,000 Net operating Income            19,000

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