CVP Analysis show all work ABC CO. manufactures a product that sells for $800. Fixed costs...

CVP Analysis show all work ABC CO. manufactures a product that sells for $800. Fixed costs are $850,000. The variable costs per unit are as follows: Direct materials $220 Direct labor 140 Variable manufacturing overhead 85 a. Determine the break-even point in units. (Hint: You must compute total variable costs and total fixed costs) b. Determine the break-even sales dollars c. Determine the number of units that must be sold to earn $300,000 in profit before taxes. d. Determine the number of units that must be sold to generate an after-tax profit of $110,000 if there is a 40 percent tax rate.

Solutions

Expert Solution

Selling price per unit = $800

Variable costs per unit = Direct materials per unit + Direct labour per unit + Variable manufacturing overhead per unit

= $220 + $140 + $85

= $445

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

= $800 - $445

= $355

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= $355 / $800

= 0.44375

Break-even point in units = Fixed costs / Contribution margin per unit

= $850,000 / $355

= 2,394 units

Break-even point in sales dollars = Fixed costs / Contribution margin ratio

= $850,000 / 0.44375

= $1,915,493

Units to be sold = (Fixed costs + Desired profit) / Contribution margin per unit

= ($850,000 + $300,000) / $355

= 3,239 units

Before tax profit = $110,000 / (1 - 0.4) = $183,333

Units to be sold = (Fixed costs + Desired profit) / Contribution margin per unit

= ($850,000 + $183,333) / $355

= 2,911 units

* Units are rounded to the nearest unit.

* Sales revenues, profit are rounded to the nearest dollar.

ekkarill92 answered 1 year ago

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