Question

Ivanhoe Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100.000 units. selling expenses $220,000 (40% variable and 60% fixed), direct materials $510,000, direct labor $290,200, administrative expenses $278,000 (20% variable and 80% fixed), and manufacturing overhead $366,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) (1) Contribution margin for current year $ Contribution margin for projected year $ (2) Fixed Costs A

Answer 1

Projected Year 1,760,000 Contribution margin per current year and projected year :- Current Particulars Year Sales 1,600,000 Less: Variable costs Direct materials 510,000 Direct labor 290,200 Manufacturing overhead 256,200 Selling expenses 88,000 Administrative expenses 55,600 Total Variable expenses 1,200,000 Contribution margin 400,000 561,000 319,220 281,820 96,800 61,160 1,320,000 440,000 Fixed Classification of Current year cost into Variable and Fixed :- Particulars Variable Direct materials 510,000 Direct labor 290,200 Manufacturing overhead 256,200 Selling expenses 88,000 Administrative expenses 55,600 Total Expeses 1,200,000 109,800 132,000 222,400 464,200 Fixed cost is $ 464,200/. Breakeven point in units is = Fixed cost/Contribution margin per unit Breakeven point in units is = (464200/(400000/100000)) Breakeven point in units is = (464200/4) Breakeven point in units is - 116,050 Breakeven point in dollars is = Fixed cost/Contribution margin % Contribution margin %= ((16-12)/16)*100 Contribution margin % = 25% Breakeven point in dollars is = (464200/25%) Breakeven point in dollars is = $1,856,800/.