Question

CVP Analysis; Break-even point (2pts): Diagram, Inc., produces and sells a single product whose selling price is $240.00 per unit and whose variable expense is $72.00 per unit. The company's fixed expense is $372,960 per month.

Determine the monthly break-even in:

a)     unit sales volume

b)     total dollar sales

CVP Analysis; Target Profit (2pts): L. Gott Corporation produces and sells a single product. Data concerning that product appear below:

Selling price per unit	$	230.00
Variable expense per unit	$	103.50
Fixed expense per month	$	518,650

a. Assume the company's monthly target profit is $12,650. Determine the unit sales to attain that target profit.

b. Assume the company's monthly target profit is $63,250. Determine the dollar sales to attain that target profit.

CVP Analysis (2pts) Hunter Corporation produces and sells a single product. Data concerning that product appear below:

	Per Unit			Percent of Sales
Selling price	$	100			100	%
Variable expenses		30			30	%
Contribution margin	$	70			70	%

Fixed expenses are $234,000 per month. The company is currently selling 4,000 units per month.

Management is considering using a new component that would increase the unit variable cost by $7. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected?

Answer 1

Diagram inc.

Ans.a	Break even units = Fixed cost / Contribution margin per unit
		372960 / 168
		2220 units
	Contribution margin per unit = Selling price per unit - Variable cost per unit
		240 - 72
		168	per unit
Ans.b	Break even in dollars = Fixed cost / Contribution margin ratio
		372960 / 70%
		532800
	*Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100
		168 / 240 * 100
Gott Corp.		70%
Ans.a	Unit sales for target profit   =    (Fixed cost + Target profit) / Contribution margin per unit
	(518650 + 12650) / 126.5
	4200 units
	Contribution margin per unit = Selling price per unit - Variable cost per unit
	230 - 103.50
	126.5
Ans.b	Dollar sales for target profit   =    (Fixed cost + Target profit) / Contribution margin ratio
		(518650 + 12650) / 55%
		966000
	*Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100
		126.5 / 230 * 100
		55%
Hunter Corp
Ans.3	Current income statement:
	Sales (4000*100)		400000
	Less: Variable expenses (4000*30)		120000
	Contribution margin		280000
	Less: Fixed expenses		234000
	Net operating income		46000
	New Sales units (4000+500)   = 4500
	New variable cost per unit (30+7) = 37
	Sales (4500*100)		450000
	Less: Variable expenses (4500*37)		166500
	Contribution margin		283500
	Less: Fixed expenses		234000
	Net operating income		49500
	*After this change the the Net Operating Income would increase by 3500 (49500-46000).