Question

L Problem 2 Cleveland Browns Company is analyzing its CVP relationships for product Football. Company accountants have accumulated the following monthly information: Per Unit Units 50,000 Sales $ 1,250,000 $ 25.00 Variable Costs 600,000 $ 12.00 Contribution Margin 650,000 $ 13.00 Fixed Costs 481,000 Net Income $ 169,000 Fill in the following table. Show your work and highlight your answer for each item. Break-Even Sales in Units: Margin of Safety, Units: Margin of Safety, Percentage (%): (Whole Units) (Whole Units) (0.000%) Break-Even Sales in Dollars ($): ($0.00) Margin of Safety, Dollars ($): ($0.00) Operating Leverage: (0.00) Sales in whole units necessary to achieve a minimum Sales in dollars ($) necessary to achieve a minimum of $180,000 of Net Income per month. of $180,000 of Net Income per month. (Whole Units) ($0.00) Cleveland is facing increasing competition from Bengals Company. This will force Cleveland to reduce its sales price by 10%. In addition, economic conditions are deteriorating, causing a reduction in sales volume. Browns management believes unit sales will decrease by 5%. Management wants a minimum net income of $ 165,000. Cleveland has been working with its suppliers and has been able to reduce variable costs by $2.00 per unit. However, the company must also reduce its fixed costs. By how much must Cleveland decrease its fixed cost to achieve the desired $165,000 of net income? Show your work and highlight your answer in the blank. Decrease in Fixed Costs:

Please show and include all work, will give a very good rating

Answer 1

Break-Even sales in units: (whole units) Beak-Even sales in units = Fixed cost/SP - VC SP= selling price per unit VC= variable cost per unit Break even sales units = 481000/25-12 = 37000 units	Margin of safety in units= Actual sales-Break even sales in value / selling price per unit = 50000 units* $25 - 37000 units* $25 / $25 = 13000 units	Margin of safety Percentage(%): = (current sales level - break even sales in values)/current sales level*100 = (50000 units*$25-37000 units*$25)/(50000 units*$25)*100 = 26%
Break even sales in dollars($): Break even sales in dollars = Fixed cost / contribution margin ratio = 481000/((25-12)/25*100) = $925,000	Margin of safety in dollars: = Margin of safety in units* Selling price = 13000 units * $25 = $325000	Operating leverage: % change in operating income/% change in sales value =(165059.5-169000/165059.5*100)/(1068750-1250000/1068750*100) = -2.38%/-16.96% = 0.14%

Sales in whole units necessary to achieve a minimum of $180000 per month: = fixed cost + targeted income/contribution per unit = (481000+180000)/13 = 50846.15 units (Approximately 50846 Units)

Sales in dollars necessary to achieve a minimum of $180000 per month: =Fixed cost + targeted income/ contribution margin ratio =(481000+18000)/(25-12)*25 = 661000/52% = $1271153.84 (Approximately $12,71153)

Revise selling price per unit=$25-10% =$22.5 Revised sales units = 50000 units - 5% = 47500 units Revised variable cost per unit=$12-$2 = $10 Revised contribution per unit = $22.5-$10 = $12.5 Contribution margin ratio=$12.5/$22.5*100 = 55.55% Fixed cost to be reduced to acheive net income of $165,000 Sales in values=f(ixed cost+desired profit)/contribution margin ratio 47500 units*$22.5 = (fixed cost+165000)/55.55% 1068750 = (fixed cost+165000)/55.55% Fixed cost+165000=1068750*55.55% Fixed cost+165000=593690.5 Fixed cost=593690.5-165000 =$428690.5 So, fixed cost to be reduced to achieve net income of $165,000 is $52309.5 ($481,000-$428690.5)