Question

Problem 6-2A (Video) Lorge Corporation has collected the following information after its first year of sales. Sales wore $2,100,000 on 105 000 units; seling expenses s 250000 40% variable and 6 fixed); direct materials $1,045,700; direct labor $250,000; administrative expenses $270,000 (20% variable and 80% fixed), and manufacturing overhead oo pow 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 unt sales mi increase by tose not yet Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) (1) Contribution margin for current years Contribution margin for projected year (2) Fixed costs for current year Compute the break-even point in units and sales dolars fr the first vear. (Ro und contribution margin ratio to 1 decimal place e.g. 0.s and final answers to o e.g. 2,510.) Break-even point Break-even point units meet its target? The company has a target net income of $160,000, What is the required sales in dollars for the company to Sales dollars required for target net income

Answer 1

1) Income Statement :-

Particulars	Amount($)	Amount($)
Sales		2100000
Less : Variable Expenses:-
Direct Materials	1045700
Direct Labor	250000
Selling Expenses ($250000*40%)	100000
Administrative Expenses ($270000*20%)	54000
Manufacturing Overhead (329000*70%)	230300
Total Variable Expenses	1680000	(1680000)
Contribution Margin		420000
Contribution Margin Ratio		20%

Contribution Margin for projected year :-

= Sales * Contribution Margin Ratio

= ($2100000 + 10% of $2100000) * 20%

= $2310000*20%

= $462000

2) Fixed Cost :-

Particulaes	Amount($)
Fixed Costs :-
Selling Expenses($250000*60%)	150000
Administrative Expenses ($270000*80%)	216000
Manufacturing Overhead	98700
Total Fixed Cost	464700

Break Even Point in Dollers :-

= Fixed Cost / Contribution Margin

= $464700 / 20%

= $2323500

Break Even Point in Units = Fixed Cost / Contribution Per Unit

Contribution Per Unit = Contribution Margin / No. units Sold

= $420000/105000

= $4 per unit

If Net Income is $160000, What is the Required Sales in Dollars:-

= (Net Income + Fixed Cost)/Contribution Margin %

= ($160000+$464700) / 20%

= $624700 / 20%

= $3123500

Margin of Safety (%) = (Sales - break even Point in Doller)/Sales

= ($3123500 - $2323500)/ $3123500

= $800000 / $3123500

= 25.61%

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