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The Forever2 Company makes two products, A and B. The details on sales mix and costs and revenue appear below: Total Product A Product B Cost/Quantity 140 |$ 10,000 Sales Price Sales Volume Direct Material/Unit Direct Material Cost/lb Direct Labor Hours/Unit Direct Labor Rate/Hour Manufacturing Supplies Machine Hours/Unit Overtime Hours Overtime Rate Premium Plant Utilities/MH Depreciation Plant Supervisor Salaries Plant Managers Salary Presidents Salary Design Engineering Salaries Factory Janitorial Salaries Fixed Selling & Admin Sales Commission % Sales Commission/Unit 80 40,000 7.50 $ 5.00 1$1,500,000 Regular Rate only 25.00 $ 25.00 4 0.10 $ 12.50 $ 0.08 $ 0.25 6,500 12.50 $ 0.08 $ 81,250 OT Only 6,400 40,000 $120,000 $125,000 $180,000 $160,000 80,000 $220,000 10% 10% 14.00 $ 8.00$460,000 The Sales Mix is 1 unit of A and 4 units of B The income statement for the current sales volume is below: $ 1,400,000 $ 3,200,000 $ 4,600,000 Revenue Variable Manufacturing Costs $ 909,450 $ 1,653,200 $ 2,562,650 Manufacturing Margin Variable Selling & Admin Contribution Margin Fixed Costs Fixed Overhead Fixed Selling & Administration Operating Income $490,550 $ 1,546,800 $2,037,350 $140,000 $ 320,000 $460,000 $350,550 $ 1,226,800 $1,577,350 $525,000 $400,000 652,350 Required A. Determine the breakeven point in units and revenue B. Create a Cost Volume Profit chart. C. If the sales mix changes so the 2 units of A are sold for every 3 units of B, how will the answers to parts A. and B. above change? Consider part C. What is the name of the type of analysis used in part C? What CVP issues does this method address? How else could it be used and how would decisions be improved D.

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Answer #1

PART A

TOTAL MACHINE HOURS PRODUCT A -10000 X4 PRODUCT B = 40000 X 1 TOYAL HOURS REGULAR 40000 40000 80000 OVERTIME HOURS -10000 X 0.25 40000 X 0.10 2500 4000 6500 MACHINE COST PRODUCT A PRODUCT B TOTAL COST FOR REGULAR HOURS =40000 X 12.5 -40000 X 12.5 500000 500000 S 10,00,000 FOR OVERTIME HOURS 2500 X 12.5 4000 X 12.5 31250 50000 S 81,250 TOTAL MACHINE COST PER PRODUCT 500000+31250 -500000+50000 531250 550000 TOTAL MACHINE COST PER UNIT+531250/10000 +550000/40000 53.13 $ 13.75 PLANT UTILITIES COST (BASED ON REGULAR MACHINE HOURS) PRODUCT A -1000OX4X0.08 -40000x1x0.08 PRODUCT B TOTAL COST 3200 3200 S 6,400

TOTAL FIXED COST 9,25,000 CONTRIBUTION PER UNIT PRODUCT A PRODUCT B TOTAL CONTRIBUTION (A NO OF UNITS SOLD (B) CONTRIBUTION PER UNIT (A/B) 350550 10000 35.055 1226800 40000 30.67 rea Fixed Costs Break Even Point in Units Sales Price per Unit - Variable Cost per Unit Break Even Point Break Even Point in DollarsSales Price per Unit x Break Even Point in Units BREAK EVEN POINT PRODUCT A PRODUCT B FIXED COST (A) CONTRIBUTION PER UNIT (B) BREAK EVEN POINT (UNITS) (C)- (A/B) 925000 35.055 26387 925000 30.67 30160 SALES PRICE (D) BREAK EVEN POINT ( $ ) ( E 140 $ 36,94,195S 80 D X C) 24,12,781

Calculation of Variable Cost per unit PRODUCTA PRODUCTB DIRECT MATERIAL PER UNIT A: 5 X7.5 $ B:3 X3 DIRECT LABOUR COST PER UNIT A: 2 X 25 S B: 1X25 S 37.50 9.00 50.00 25.00 MACHINE COST PER UNIT PLANT UTILITIES COST A: 4 X0.08 $ B 1X0.08 S 53.13 13.75 0.32 0.08 SALES COMMISSION VARIABLE COST PER UNIT 154.95 55.83 TOTAL VARIABLE COST PRODUCT WISE A: 10000 X 154.95 B: 40000 X 55.83 1549500 2233200

PART B

PART B CVP CHART Product Units Sales | V. Costs (A) | F. Costs ( B) | TOTAL COST (C) A + B) 10,000 40,000 1400000 3200000 1549500 2233200 525000 400000 4707700

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