Question: CVP and Sensitivity Analysis (Single Product). Victoria, Inc., has ann

Question

Question:

CVP and Sensitivity Analysis (Single Product). Victoria, Inc., has annual fixed costs totaling $240,000 and variable costs of $6 per unit. Each unit of product is sold for $30. Victoria expects to sell 12,000 units this year (this is the base case).

Required:

Find the break-even point in units.

How many units must be sold to earn an annual profit of $100,000? (Round to the nearest unit.)

Find the break-even point in sales dollars.

What amount of sales dollars is required to earn an annual profit of $140,000?

Find the margin of safety in units and in sales dollars.

Prepare a contribution margin income statement for the base case.

What will the operating profit (loss) be if the sales price decreases 30 percent? (Assume total sales remains at 12,000 units.)

Go back to the base case. What will the operating profit (loss) be if the variable cost per unit increases 10 percent? (Assume total sales remains at 12,000 units, and round to the nearest cent where appropriate.)

Using the format as follows:

ROBLEMS CVP and Sensitivity Analysis (Single Product) The break-even point in units is calculated as: 51. Break-even point in units = units b. The target profit point in units is calculated as: Target profit in units 14,167 units (rounded) c. The break-even point in sales dollars is calculated as: Break-even point in sales dollars =

Explanation / Answer

1. Find the break-even point in units.

Break even point in units = Fixed cost / Contribution margin = 240,000 / 24 = 10,000 units

where contribution margin = sale price per unit - variable cost per unit = 30 - 6 = $24

2. How many units must be sold to earn an annual profit of $100,000?

= ( Fixed cost + expected annual profit ) / Contribution margin = (240000+100000) / 24 = 340,000 / 24 = 14,167 units

3. Find the break-even point in sales dollars.

Break even point in sales dollars = Fixed costs / Contribution margin ratio = 240,000 / 80% = $300,000

where contribution margin ratio = Contribution margin / Sales price per unit = 24/30 = 80%

4. What amount of sales dollars is required to earn an annual profit of $140,000?

= (Fixed cost + expected profit) / Contribution margin ratio = (240000 + 140000) / 80% = 380000/80% = $475,000

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.