sales ke Corporation p and sells a product that has variable costs of s20 and a
ID: 2493106 • Letter: S
Question
sales ke Corporation p and sells a product that has variable costs of s20 and a selling price of $60. Its current costs to $120,000 per month. Fixed manufacturing costs total s50,000 per month and fixed selling and administrative total $25,000 per month. a) Compute the company's break even point in units and dollars. b) Illustrate the (indicate points, loss profit areas in addition to th for total revenue, total cost and fixed cost). c) Compute current income. the company's of units, dollars and e) Illustrate the margin of safety on the cvP graph. Holyoke is considering a proposal to increase the selling price per unit by 5%, the fixed manufacturing cost by 5% and fixed administrative cost by $2,800. Compute the break-even point in units assuming the proposal is accepted. g) Compute the company's net income if the proposal is accepted and sales volume is 2,000 units. h) Discuss whether the proposal should be accepted.Explanation / Answer
a. Contribution per unit = Selling price - Variable cost = 60 - 20 = $40
Fixed cost = $50000 + $25000 = $75000
Breakeven point in units = Fixed cost / Contribution per unit
= 75000/40
= 1875 units
Breakeven point in $ = 1875 x $60 = 112500
c. PV Ratio = 40/ 60 x 100 = 66.67%
Current net income = Contibution - FIxed expenses
= (Sales x PV Ratio) - Fixed expenses
= (120000 x 66.67%) - 75000
= $5000
d. MOS = Total sales - Breakeven Sales
= 120000 - 112500
= $7500
MOS (%) = 7500/120000 x 100 = 6.25%
MOS (units) = 7500/60 = 125 units.
f. Revised Selling Price = 60 x 1.05 = $63
Revised contribution per unit = 63 - 20 = $43
Fixed cost = (50000 x 1.05) + (25000 + 2800) = $80300
Revised BEP in units = 80300 / 43 = 1868 units
g. Net Income = Contribution - Fixed cost
= (2000 x 43) - 80300
= $5700
h. The proposal decreases the BEP from 1875 units to 1868 units, and hence it should be accepted.
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