Question

Prepare a CVP income statement for December 31, 2020.

Problem -SoHo Co. produces and sells a jeweled handbag to retail stores in the New York area. In 2019, the company sold 51,000 units of the handbag. Sales and costs for that level of sales is as follows: Sales $2,040,000 Variable costs 1,632,000 Contribution margin 408,000 Fixed costs 127,500 Net income 280,500 Required: Prepare a CVP income statement for December 31, 2020 for the SoHo. Assume that the company expects total sales to be 70,000 units for 2020 with no change in unit sales price or unit variable cost. (Round your figures to whole dollars)

Answer 1

Contribution Margin= Selling price - Variable cost $40 - $32 $8 SoHo Company CVP Income Statement For the Year Ended December 31,2020. Total Per Unit Sales $ 2,800,000 $ 40 Less: Variable Cost $ 2,240,000 $ 32 Contribution Margin $ 560,000 $ 8 Less: Fixed Cost $ 127,500 Net Income $ 432,500 Contribution Margin Ratio= Contribution Margin / Sales $8 / $40*100 20% Breakeven point(units)= Fixed cost / Contribution Margin $127,500 / $8 15,938 Breakeven point($)= *Sales Per unit=[$2,040,000/51,000units] =$40; *Variable Cost unit=[$1,632,000/51,000 units] =$32; *Contribution Margin=$40 - $32 = $8; *Sales={$40*70,000 units] = $2,800,000; *Variable Cost=[$32*70,000 units] = $2,240,000; *Contribution Margin=$2,800,000-$2,240,000=$560,000; *Net Income=$560,000-$127,500=$432,500. Fixed cost / Contribution Margin Ratio $127,500 / 20% $ 637,500

CVP 4,200,000 3,902, 003 3600,000 3,300,000 Total Sales 3,00,oo 2,700, oro 2,400,00 2,100, evo 1.800,450 Operating paft 1,500,000 Total Costs 1,200,000 900,000 Break.even Point 6,00,000 3,00,000 Loss toperating $0 59 200 70,000 99,000 Goooo 70000 80000 units o 10,000 29000 39,000 *). BEP (unts) BEP $ 15,938 units; $637,500 Total Costs under BEP $. 510,000 Fixed cost $. 127,500 vertical at zero units of sales Horizontal Avis Dollar amont Axis. *). A sales line is plotted by beginning Left comer of the grouph.

Assumptions of CVP analysis:

* Total Sale and Total costs can be represented by straight lines.

* Within the relevant rane of operating activites and efficiency of operatins does not change.

* Costs can be accrurately divided into fixed and variable components.

* The Sales mix is constant.

* There is no change in the inventory quantities during the period.

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**Variable costing: It is a method of inventory costing in which all variable manufacturing costs are
included as inventoriable costs. All fixed manufacturing costs are excluded from inventoriable costs.
They are treated as costs of the period in which they are incurred.

**Variable Costs: Variable costs are those cost that are incurred by the firm as a result of the use of variable factor inputs. They are dependent of the level of input.

**Fixed Costs: Fixed costs are those cost that are incurred as a result of the use of fixed factor inputs, It remains fixed at any level of output in the short run.

**Sales - Total Variable Cost = Contribution Margin
**Contribution Margin - Fixed Cost = Operting Profits.

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