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ailings Review View Help CASE PRESENTATION 4: CVP and Analysis of Changes Townsend Footwear Ltd is a Hamilton company that manufactures sports shoes designed specifically with sportspeople in mind. The company gold 15,000 pairs of shoes last year at a price of $120 per pair. Last year's total costs of manufacture amounted to: Direct Costs: Direct Labour Direct Material 450,000 645,000 Indirect Costs: Variable Overhead Fixed Overhead Total Cost 75,000 225.000 $1,395.000 In an attempt to improve the product and make it more suited to professional sports people use, the company is considering for next year replacing a direct material component that has a cost of $15 with a superior material costing $25. To make the improvements a new machine will have to be leased to cope with the new material; this move would increase fixed overheads by $45,000 per year. Required: 1.

Answer 1

Ans. Per Units Price Amount $ 120 Sales (-) Direct Labour (-) Direct Material Contribution 1,80,0000 11,50,000 6,45,000 30 43 47 가 7,05,000 5 (-) Variable Overhead 75000 6,30,000 ५२ Contribution 2,25,000 is fixed Overhead Profit 27 4,05,000 Break Even Point in Volume : Fixed Cost Contribution permit 2.25,000 48 5357 units Break Even point in Dollars : Margin Ratio fixed Cost 2.25,000 Contribution 0.35 $ 6,42,857-1 Explanation Break Gen point of 5357 writs & $ 6,42,857.14 means there would be a situation of Profit no loss at that point of sals.

Margin of Safety Units of Current Sales - Break Even Point Units 15ooo - 5357 9643 Units Explanation : Margin of safety je 9643 units indicates the amount by which a company's sales could decrease before the company will have no profit. 5 No. of shoes the company would have to sell for earn operating profit of $4,20,606% sales 120 0 420 = Variable Exp & fixed Exp + profit 78 8 + 2,25,000 + 4,20,606 6,45,606 15,374 Units 15371 Units

Per Units Bice 30 53 Next Year Assumptions Amount sales 1 100,000 (- Direct Labour 4,30,000 Direct Material 7,95,000 (c) Variable Overhead 75000 Contribution 4,80,000 (-) fixed Overhead 270,000 Profit 210,000 گر 33 18 14 Break Een point in units : fixed Cost Contribution per unit 2,70,000 32 © Last year operating Profit This year Operating profit Desixed Profit $ 4,05,000 $ 210,000 $ 4,05,000 Sales - Variable Exp. + fixed Exp. + Bofit 1200 - 88 at 270,000 + 405,000 320 = 6,75,000 21093 Units The co. would have to sell 21093 Units to eam profit the Same as last year.

Sale Price = $135 per unit Chits 17, so Operating profit & Sales Variable Exp. a fixed Exp. (17,500 X 135) - (17,50 x 82) 270,00 23,62,500 - 15,40,000 - 2,70,000 $ 552.000