Question

Problem 5-6A (Video) (Part Level Submission) Sunland Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $200,000 (40% variable and 60% fixed), direct materials $508,000, direct labor $290,400, administrative expenses $278,000 (20% variable and 80% fixed), and manufacturing overhead $380,000 (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.

Answer 1

At Breakeven sales contribution margin is equal to fixed cost:

Contribution margin ratio:

= $456,400 / $1,825,600

= 25%

(c)

Sales dollars required for target income:

= ($456,400 + $200,000) / 25%

= $2,625,600

(d)

Margin of safety:

= ($2,625,600 - $1,825,600) / $2,625,600

= 30.5%