Question

During FY 2016, Alpha Company sold 500 units for total sales of $20,000. Manufacturing costs consisted of direct labor $2,500, direct materials $4,400, variable factory overhead $1,100, and fixed factory overhead $3,500. Alpha Company does not maintain any inventories. Total cost of goods sold was $4,400. Selling expenses were $900 variable and $1,000 fixed. Administrative expenses were $1,500 variable and $2,000 fixed. Net Income was $3,100. Use this information to determine the following using CVP Analysis: (Round all final answers to nearest dollar or whole unit number.)

1. Breakeven Point in total sales dollars

2. Breakeven Point in total units

3. Breakeven Point in total sales dollars if the fixed factory overhead increased by $1,500

4. Breakeven Point in total units if the fixed factory overhead increased by $1,500

5. Net Income if sales units increased by 35%

Answer 1

Note

1 Let us first calculate contribution per unit and PV ratios :-

Contribution :-

Sales	20000
(-) variable cost
Direct labour	(2500)
Direct material	(4400)
Variable factory overhead	(1100)
Variable selling exp	(900)
Variable administrative exp	(1500)
Contribution	$9600

Contribution per unit = 9600/500 = $19.20

PV ratio = (contribution / sales )x100

= (9600/20000)x100 = 48%.

Total fixed cost

Fixed factory overhead	3500
Fixed selling exp	1000
Fixed administrative exp	2000
Total fixed cost	$6500

1 . Breakeven point in total sales dollar = fixed cost /PV ratio = 6500/48% = $13541.67

2 .Breakeven point in total units = fixed cost / contribution per unit = 6500/19.20 = 338.54 or 339 units.

3. Breakeven point in total sales dollars if fixefixed factory overhead increase by $1500

In such case total ftotal fixed cost = 6500+1500 = $8000

Breakven = 8000/48% = $16666.67

4. Breakeven in total units if fixed factory overhead increase by $1500 =✓8000/19.2 = 416.67 units.

5. Net income if total sales units increase by 35%.

Total sales units in such case = 500x1.35 = 675

We know that per unit sales price is 20000/500 = $40

Net income = (675x40)x48%-6500 = $6460