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Question: During FY 2016, Alpha Company sold 500 units for total sales of $20,000. Manufacturing costs...

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 $5,400, variable factory overhead $1,100, and fixed factory overhead $3,500. Alpha Company does not maintain any inventories. 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%

Solutions

Expert Solution

Selling price per unit = 20,000/500

= $40

Total variable cost = Direct material + Direct labor + Variable factory overhead + Variable selling expenses + Variable administrative expenses

= 5,400 + 2,500 + 1,100 + 900 + 1,500

= $11,400

Hence, variable cost per unit = 11,400/500

= $22.8

Fixed cost = Fixed factory overhead + Fixed selling expenses + Fixed administrative expenses

= 3,500 + 1,000 + 2,000

= $6,500

Contribution margin = Selling price per unit - Variable cost per unit

= 40 - 22.8

= $17.2

Contribution margin ratio = Contribution margin/Sales

= 17.2/40

= 43%

(1)

Break even point (in $) = Fixed cost/Contribution margin ratio

= 6,500/43%

= $15,116

(2)

Break even point (in units) = Fixed cost/Contribution margin per unit

= 6,500/17.2

= $378 units

(3)

New fixed cost = 6,500 + 1,500

= $8,000

Break even point (in $) = Fixed cost/Contribution margin ratio

= 8,000/43%

= $18,605

(4)

New fixed cost = 6,500 + 1,500

= $8,000

Break even point (in units) = Fixed cost/Contribution margin per unit

= 8,000/17.2

= 465 units

(5)

Increase in sales units = 500 x 35%

= 175

Hence, new sales units = 500 + 175

= 675

Profit = (Sales x Contribution margin ratio) - Fixed cost

= (675 x 40 x 43%) - 6,500

= 11,610 - 6,500

= $5,110

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubts. Thanks.

ekkarill92 answered 2 years ago
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