Question

Project 1: CVP Income Statement (10 points) Instructions: Prepare your solutions in Excel, and upload your Excel file to Moodle by The deadline specified by your instructor. Do NOT email your filel The following information pertains to Crescent City, a lawn mower manufacturer: $ 1. Budgeted production costs for the coming year: a. Direct materials per mower b. Direct labor per mower c. Variable overhead per mower d. Total fixed overhead 250 130 70 33,500 2. Budgeted selling and administrative costs for the coming year: . Fixed selling & adm expense b. Sales commission per mower 50 $ 52.900 3. In the coming year, Crescent City plans to produce and sell 1,500 mowers at a price of $590 each. Instructions for Project 1: 1. Prepare a CPV income statement. 2. Calculate the breakeven point in units and sales dollars. 3. Calculate the margin of safety. 4. Calculate the margin of safety ratio. 5. If Crescent City wants to earn net income of $100,000, how many units must it sell?

Answer 1

1. Preparation of CVP Income Statement
Crescent City
CVP Income Statement
	Per unit	Total
Sales - 1,500 units	$          590	$     885,000
Less: Variable Cost:
Direct Material	$          250	$     375,000
Direct Labor	$          130	$     195,000
Overhead	$            70	$     105,000
Sales Commission	$            50	$       75,000
Total Variable Costs	$         500	$   750,000
Contribution Margin	$           90	$   135,000
Less: Fixed Costs:
Overheads	$       22.33	$       33,500
Selling & Adm. Expense	$       35.27	$       52,900
Total Fixed Costs	$      57.60	$     86,400
Net Income/Profit	$       32.40	$       48,600
2. Breakeven Point
Breakeven in Units = Total Fixed cost ÷ Contribution Margin/unit
BEP in units = $86,400 ÷ $90 = 960 Mowers
Breakeven in Dollars = Total Fixed cost ÷ Contribution Margin Ratio
BEP in Dollars = $86,400 ÷ 0.1525423 = $566,400
CM Ratio = Contribution /Sales = 90/590 = 0.1525423
3. Margin of safety(MOS) = Estimated Sales - Breakeven Sales
Margin of safety (MOS) = $885,000 - $566,400 = $318,600
4. MOS Ratio = MOS/Estimated Sales
MOS Ratio = $318,600/$885,000 = 0.36 or 36%
5. Number of units to be sold to earn net income of $100,000
Units to be sold = (Net Income + Fixed Cost)÷ CM per unit
Units to be sold = ($100,000 + 86,400)÷ $90 = 2,071.11 units
So, 2,072 units must be sold to earn net income of $100,000.

19.3

Required Sales to Break-even = Total Fixed Costs ÷ CM Ratio

= $120,000 ÷ ($100,000 ÷ $250,000)

= 0.4 or 40%

19.4

a) Using Mathematical equation,Break-even Point:

Profit = Sales - Total Fixed Cost - Total Variable Cost

0 = 400Q - $210,000 - 250Q

$210,000 = 150Q

Q = $210,000 / $150= 1,400 units

At Break even Points Profit is Zero in above equation, where Q is used for quantity

b) Using Contribution Margin

Break Even Point (units) = Total Fixed Cost / Contribution Margin per unit

= $210,000 / $150 = 1,400 units

CM = Sales - Variable Cost =$400 - $250 = $150

19.5

CMR = 1- Variable Cost Ratio = 1- 70/100 = 30%

Required Sales needed to achieve target = (Fixed Cost + Target Income) / CMR

=$(210,000+ 60,000) / 30% = $900,000