Question

Basic CVP relationships: manufacturer Vine Pty Ltd produces and sells bottles of wine. Price and cost data are in the following table. $ 37.50 P18.33 LO18.1 18.3 S 12.30 Selling price per bottle 18.4 6.00 Variable costs per bottle: 18.5 Direct material 9.00 Direct labour 2.40 S 29.70 Manufacturing overhead Selling costs S 432000 Total variable costs per bottle Annual fixed costs Manufacturing overhead 621 000 $1053000 $5250000 Selling and administrative Total fixed costs Forecast annual sales (140000 units

Answer 1

Correct Answer:

Requirement 1:

break even in units

135000 units

Requirement 2:

break even in sales dollars

$ 5,062,500.00

Working:

A	Sales price per unit	37.5
B	Less: variable cost per unit	29.7
C=A-B	Contribution margin per unit	7.8
D=C/A	contribution margin ratio	21%
E	fixed cost	1053000
F=E/C	breakeven in units	135000
G=E/D	break even in sales dollars	5062500

Requirement 3:

breakeven in units

244,890.11 units

Working:

target profit after tax	$                          600,000.00
Add: tax rate	30%
target profit before tax	$                          857,142.86
Add: fixed cost	$                       1,053,000.00
subtotal	$                       1,910,142.86
Contribution margin per unit	$                                       7.80
breakeven in units	244,890.11 units

Requirement 4:

A	Total Sales	(140,000 * $ 37.50)	$                           5,250,000.00
B	Break Even Sales	(135000 * $ 37.50)	$                           5,062,500.00
C=A-B	Margin of Safety Sales		$                               187,500.00
D=C/A	Margin of safety %		3.6%

Requirement 5:

New sales revenue

$               38.10

Working:

			10% increase in direct labor
A	sales revenue	$                                     37.50
	Total variable cost
	Direct material	$                                     12.30	$               12.30
	Direct labor	$                                       6.00	$                  6.60
	Manufacturing overheads	$                                       9.00	$                  9.00
	selling costs	$                                       2.40	$                  2.40
B	total variable cost	$                                     29.70	$               30.30
C=A-B	Contribution margin	$                                       7.80	$                  7.80
D = $ 30.30 + $ 7.80	New sales revenue		$               38.10

End of answer.

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