Question

NT DESIGNS and Diane Buswell, controller at Curr composite models of the kayak division. Th Ball Johnson, sales manager, rent for one of the on sicerational costs necessary to produce one composite kayav proviaeg ming to analyze the cos $250 per kayak $100 per kayak S170 per kayak $420 per kayak $400 per kayąk. $119,000 per year $240,000 per year Resin and supplies Finishing kit (seat, rudder, ropes, etc.) Labor Seling and administrative expenses - variable Selling and administrative expenses-fixed fixed Bill and Diane have asked you to provide a cost-vol the upcoming year t analysis, to help them finalize the budget projections for Bill has informed you that the selling price of the composite kayak will be $2.000. Instructions (a) Calculate variable cost per unit. b) Determine the unit contri c) Using the unit contribution margin, determine etermine n margin ly the break-even point in units for this product ine d) Assume that Current Designs plans to earn $270,000 on this product line. Using the unicbutinn ow act in, calculate the number of units that need to be sold to achieve this goal. marg e) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a" Using your results from part (c), calculate the margin of safety and the margin of safety ratio. (a) Calculate variable cost per unit. Valueo Kevlar®

Answer 1

a)	Variable cost per unit
	kevlar	250.00
	resin & supplies	100.00
	finishing kit	170.00
	labour	420.00
	selling & administrative -variable	400.00
	variable cost per unit	1,340.00
b)	unit contribution margin
	Selling price	2,000.00
	Less:variable cost	1,340.00
	unit contribution margin	660.00
	when selling price is increased to 2200 &fixed manufacturing overhead to 360000
	Selling price	2,200.00
	Less:variable cost	1,340.00
	unit contribution margin	860.00
c)	Break even point in units=Fixed expenses/Contribution per unit
	Fixed Expenses
	Manufacturing overhead	240,000.00
	Selling & administrative expense	119,000.00
	Total fixed expenses	359,000.00
	Break even point(units)=359000/660
		543.94
	that is 544 units
	when selling price is increased to 2200 &fixed manufacturing overhead to 360000
	Manufacturing overhead	360,000.00
	Selling & administrative expense	119,000.00
	Total fixed expenses	479,000.00
	Break even point(units)=479000/860
		556.98
		557.00
d)	To achieve Target income 270000
	Total fixed expense	359,000.00
	Target income	270,000.00
	total fixed expense+target income(1)	629,000.00
	contribution margin(2)	660.00
	unit to be sold(1/2)	953.03
	that is 953 units
	when selling price is increased to 2200 &fixed manufacturing overhead to 360000
	To achieve Target income 270000
	Total fixed expense	479,000.00
	Target income	270,000.00
	total fixed expense+target income(1)	749,000.00
	contribution margin(2)	860.00
	unit to be sold(1/2)	870.93
	that is 871 units
e)	Margin of safety
	actual(expected) sales	2,000,000.00
	break even sales	1,088,000.00
	margin of safety in dollars=(Expected sales-breakeven sales
	(2000000-1088000)	912,000.00
	Margin of safety Ratio
	Margin of safety in dollars(a)	912,000.00
	actual sales(b)	2,000,000.00
	Margin of safety Ratio(a/b)	0.46
	when selling price is increased to 2200 &fixed manufacturing overhead to 360000
	Margin of safety
	actual(expected) sales	2,200,000.00
	break even sales	1,196,800.00
	margin of safety in dollars=(Expected sales-breakeven sales
		1,003,200.00
	Margin of safety Ratio
	Margin of safety in dollars(a)	1,003,200.00
	actual sales(b)	2,200,000.00
	Margin of safety Ratio(a/b)	0.46