Question

CVP Analysis

Van Otis Chocolates sells boxes of designer chocolates. They had the following information for the year:

         Sales (6500 units)……………………$81,250

         Variable Expenses …………………..$52,000

         Fixed Expenses………………….……$49,500

Calculate the following (all count as 1 point each):

1. Calculate the UCM (unit contribution margin):

2. Calculate the CMR (contribution margin ratio):

3. Calculate the breakeven point in units:

4. Calculate the breakeven point in sales dollars:

5. Assume they want to earn a profit of $36,000. How many units do they have to sell?

6. What is the margin of safety in units?

Answer 1

1 . Unit contribution margin

=sales price per unit-variable cost per unit

=($81,250-$52,000)/6,500

=$4.5 per unit

2.Contribution margin ratio

=contribution margin per unit/ sales per unit*100

=$4.5/($81,250/6500) *100

=($4.5/$12.5)*100

=36%

3.break even points in units = fixed cost/contribution margin per unit

=$49,500/$4.5

=11,000 units

4.break even point in sales

=fixed costs/contribution margin ratio

=$49,500/36%

=$137,500

5.profit desired = $36,000

=(Profit+fixed cost) / contribution margin per unit

=($36,000+$49,500)/$4.5 per unit

=19,000 units

6. Margin of safety

(current sales-break even point)/current sales level *100

=(19,000-11,000)/11,000 *100

=72.73%