In: Accounting
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.
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
a.
Break-even point in units = Fixed costs / Contribution margin per unit
= $850,000 / $355
= 2,394 units
b.
Break-even point in sales dollars = Fixed costs / Contribution margin ratio
= $850,000 / 0.44375
= $1,915,493
c.
Units to be sold = (Fixed costs + Desired profit) / Contribution margin per unit
= ($850,000 + $300,000) / $355
= 3,239 units
d.
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.