Question

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Cost-Volume-Profit Equation, Basic Concepts, Solving for Unknowns Legrand Company produces hand cream in plastic jars. Each jar sells for $3.40. The variable cost for each jar (materials, labor, and overhead) totals $2.55. The total fixed cost is $58,140. During the most recent year, 81,600 jars were sold. Required: 1. What is the break-even point in units for Legrand? What is the margin of safety in units for the most recent year? 2. Prepare an income statement for Legrand's most recent year. 3. How many units must be sold for Legrand to earn a profit of $25,500? 4. What is the level of sales dollars needed for Legrand to earn operating income of 10% of sales?

Answer 1

Requirement: 1a BEP Units Fixed Expenses /Unit Contribution margin per unit Fixed Expenses Unit contribution margin BEP Units 58140 0.90 64600 Requirement: 1b Margin of safety(Units) Current sales - Bep Sales Current sales Bep Sales Margin of safety(Units) 81600 64600 17000 Requirement: 2 Legard Company Income Statement For the most Recent year Sales revenue 277440 Less: Total Variable Costs 204000 Total Contribution margin Less:Total Fixed Cost 73440 58140 Operating Income 15300

Requirement: 3 Target units (Fixed Expenses Target profit) Contribution margin per unit Fixed expenses Target Profit Contribution margi per unit Target units 58140 25500 0.90 92933 Requirement: 4 Target Dollar sales ( Fixed Expenses Target profit) Contribution margin Ratio Fixed expenses Target Profit at 10% of sales Conribution margin ratio Target Dollar sales 58140 27744 0.26 324451