Determine whether the company is breaking even. What are the CVP analysis implic
ID: 2599798 • Letter: D
Question
Determine whether the company is breaking even. What are the CVP analysis implications on planning?
Statement showing computations
Particulars
Amount
Revenue from Sale of umbrellas = 5,000*11
55,000.00
Costs:
Direct Materials = 5,000*3
15,000.00
Direct Labour = 5,000*1.50
7,500.00
Variable Manufacturing Overhead = 5,000*.40
2,000.00
Variable Selling expenses = 5,000*1.30
6,500.00
Fixed Administrative Costs
15,000.00
Total Costs
46,000.00
Net Income from special Order = 55,000 - 46,000
9,000.00
Statement showing computations
Particulars
Amount
Revenue from Sale of umbrellas = 5,000*11
55,000.00
Costs:
Direct Materials = 5,000*3
15,000.00
Direct Labour = 5,000*1.50
7,500.00
Variable Manufacturing Overhead = 5,000*.40
2,000.00
Variable Selling expenses = 5,000*1.30
6,500.00
Fixed Administrative Costs
15,000.00
Total Costs
46,000.00
Net Income from special Order = 55,000 - 46,000
9,000.00
Explanation / Answer
Sale price per unit = 11
Variable cost per unit = 3+1.50+0.40+1.30 = 6.20
Contribution per unit = Sale per unit - Variable cost per unit
= 11 - 6.20 = 4.80
Break even units = Fixed administrative cost/Contribution per unit
= 15000/4.80 = 3125 units
Break even in dollar sales = 3125*11 = 34375
Contribution margin ratio = Contribution/Sales *100 = 4.80/11 *100 = 43.63%
This means that for every dollar increase in sales, there will be a 43.63 cent increase in the contribution margin to cover fixed costs.
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