Problem 21-6A Analysis of price, cost, and volume changes for contrlbution margi

Question

Problem 21-6A Analysis of price, cost, and volume changes for contrlbution margin and net Income LO P2, A The following information applies to the questions displayed below This year Bertrand Company sold 43,000 unlis of its only product for $17.60 per unit. Manulacturing and selling the product required $128,000 of fixed manufacturing costs and $188,000 of fixed selling and acministralive costs. Its per unit varlable costs follow. Meterial 4.80 Direct labor (peid on the basis of completed units)3.80 Variable overhend costs 0.48 Variable seling and administrative costs Next year the compeny wil use new matenal, which wit reduce material costs by 50% and direct labor costs by 50% and not affect product quality or marketablity, Management is considering an increase n the unit sales price to reduce the number of units sold because the factory's output is neering its annual output capecity of 48,000 units. Two plans are being considered. Under plan 1, the company will keep the price at the curent level and sell the same volume as last year. This plan will increase income becase of the reduced costs trom using the new materiel Under plan 2, the company will increase price by 20s This plan will decrease unt sales volume by 5% under both plans 1 and 2, the total fixed costs and the varisble costs per unit for overhead and for selling and administrative costs will remain the same. References Section Break Problem 21-6A Analysis of price, cost, and volume changes for contribution margin and net income LO P2, A1 10.00 points Problem 21-6A Part 1 SAMSUNG 2 3 4 5 6 7 8

Explanation / Answer

Break even point

Plan 1 Plan 2 Sales 17.60 21.12 Less: variable cost:          Material 3.84 3.84          Labour 1.90 1.90          Variable Overhead cost 0.48 0.48          Variable S&A cost 0.28 0.28          Total Variable cost 6.50 6.50 Contribution Margin 11.10 14.62 Contribution Margin % 63.07 69.22 Fixed Cost $316000 $316000 Breakeven Point in Units(Fixed cost / Contribution per unit) 28468 units 21614 units Breakeven Point in $ (Fixed cost / Contribution margin ratio) $501031 $456515

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