Question

Problem 18-06A Carla Vista Corporation has collected the following information after its first year of sales. Sales were $1,250,000 on 125,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $498,000, direct labor $33,300, administrative expenses $278,000 (20% variable and 80% foed), and manufacturing overhead $358,000 (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 forced 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) Fred Costs Compute the break-even point in units and sales dollars for the current year. Break-even point in units units Break-even point in dollars

Answer 1

Answers are Sumarised as follows
Contribution Margin for Current Year		$312,500.00
Contribution Margin for Projected Year		$343,750.00
Fixed Cost		$479,800.00
Break even point in units		191920
Break even point in Dollars		$1,919,200.00
Sales Required for Target Net Income		$2,719,200.00
Margin of Safety Ratio		29.4%
Detailed Answers are Given Below
		Current Year Sales		Projected Sales
Units		125000		137500
		Total	Per Unit Cost	Total	Per Unit Cost
Sales		$1,250,000.00	$10.00	$1,375,000.00	$10.00
Less:- Variable Expenses
Selling Expenses
(40% Variable)		$100,000.00	$0.80	$110,000.00	$0.80
		250000*40%
Direct Materials		$498,000.00	$3.984	$547,800.00	$3.984
Direct Labour		$33,300.00	$0.2664	$36,630.00	$0.2664
Administrative Exp.		$55,600.00	$0.4448	$61,160.00	$0.4448
		(20% * 278000)
Manufacturing OH		$250,600.00	$2.0048	$275,660.00	$2.0048
		(358000*70%)
Contribution Margin for Current Year		$312,500.00	$2.50	$343,750.00	$2.50
Fixed Costs
Selling Expenses		$150,000.00	$1.2000	$150,000.00	$1.0909
		(250000*60%)
Administrative Exp.		$222,400.00	$1.7792	$222,400.00	$1.6175
		(80% * 278000)
Manufacturing OH		$107,400.00	$0.8592	$107,400.00	$0.7811
		(358000*30%)
Loss		-$167,300.00	-$1.3384	-$136,050.00	-$0.9895
Break Even Point
	in Units	Fixed Costs
		Contribution Margin
		$479,800.00
		$2.50
		191920
	in Dollars	$1,919,200.00		(191920*10)	ANSWER
For Net Income $200,000. Required Sales in dollars
	in Units	Fixed Costs
		Contribution Margin
		479800+200000
		$2.50
		271920
	in dollars	$2,719,200.00		(271920*10)	ANSWER
Margin of Safety at net income of $200000
	Formulae	Current Sales - Break Even Sales		* 100
		Current Sales Level
		2719200-1919200
		$2,719,200.00
		29.4%		ANSWER

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