LO 3-3, 3-4, 3-5 Problem 3-23A Comprehensive CVP analysis Trevino Company makes
ID: 2562269 • Letter: L
Question
LO 3-3, 3-4, 3-5 Problem 3-23A Comprehensive CVP analysis Trevino Company makes and sells products with variable costs of $24 each. Trevino incurs annual fixed costs of $315,000. The current sales price is $87. Analysis of Cost, Volume, and Pricing to Increase Profitability Required The following requirements are interdependent. For example, the $252,000 desired profit introduced b. 5,000 units in Requirement c also applies to subsequent requirements. Likewise, the $80 sales price introduced in c. 9,000 unifts Requirement d applies to the subsequent requirements. a. Determine the contribution margin per unit. b. Determine the break-even point in units and in dollars. Confirm your answer by preparing an in CHECK FIGURES e. 9,500 units come statement using the contribution margin format. c. Suppose that Trevino desires to earn a $252,000 profit. Determine the sales volume in units and dollars required to earn the desired profit. Confirm your answer by preparing an income statement using the contribution margin format. d. If the sales price drops to $80 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Confirm your answer by preparing an income statement using the contribution margin format. e. If fixed costs drop to $280,000, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Confirm your answer by preparing an income statement using the contribution margin format. f. If variable cost rises to $30 per unit, what level of sales is required to earn the desired profit? Ex press your answer in units and dollars. Confirm your answer by preparing an income statement using the contribution margin format. g. Assume that Trevino concludes that it can sell 10,000 units of product for $80 each. Recall that variable costs are $30 each and fixed costs are $280,000. Compute the margin of safety in units and dollars and as a percentage. h. Draw a break-even graph using the cost and price assumptions described in Requirement gExplanation / Answer
Req A: Selling price per unit $87 per unit Variable cost per unit $24 per unit Contribution per unit (Selling price - Variable cost) ( 87-24) = $ 63 per unit ReqB: Total fixed Cost: $315,000 Break even point in units = Total Fixed cost / contribution per unit ( 315000 / 63 ) = 5,000 units Break even point in $ = Break even pointin units * Selling price ( 5000*87) = $ 435,000 INCOME STATEMENT Sales revenue (5000 units @87) 435,000 Less: Variable cost (5000 units @24) 120000 CONTRIBUTION 315,000 Less: Fixed cost 315000 Net operating income NIL ReqC: Desired profit: $252,000 Desiredcontribution ( 315000+252000) = $567,000 Required sales = Desired contribution / contribution per unit ( 567,000 /63) = 9,000 units Required sales in $ = Required sales units * selling price ( 9000 *87) = $ 783,000 INCOME STATEMENT Sales revenue (9000 units @87) 783,000 Less: Variable cost (9000 units @24) 216000 CONTRIBUTION 567,000 Less: Fixed cost 315000 Net operating income 252,000 Req D: Revised Selling pric eper unit = $80 per unit Variable cost per unit $ 24 per unit Contribution per unit $ 56 per unit (80-24) Required sales unit = desired contribution/ revised contribution per unit ( 567,000 /56 ) = 10125 units Required Sales in $ = Required Sales units* Selling price ( 10125 units*80) = $ 810,000 INCOME STATEMENT Sales revenue (10125 units @80) 810,000 Less: Variable cost (10125 units @24) 243000 CONTRIBUTION 567,000 Less: Fixed cost 315000 Net operating income 252,000
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