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Victoria Company reports the following operating results for the month of April. VICTORIA COMPANY CVP Income...

Victoria Company reports the following operating results for the month of April.

VICTORIA COMPANY
CVP Income Statement
For the Month Ended April 30, 2020

Total

Per Unit

Sales (9,000 units) $450,000 $50
Variable costs 225,000 25.00
Contribution margin 225,000 $25.00
Fixed expenses 174,900
Net income $50,100


Management is considering the following course of action to increase net income: Reduce the selling price by 6%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 20%.

Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars: (Round intermediate calculations to 4 decimal places e.g. 0.2522 and final answer to 0 decimal places, e.g. 2,510.)

(a) Assuming no changes to selling price or costs.

Break-even point

6996

units
Break-even point $

349800

Margin of safety $

100200


(b1) Assuming changes to sales price and volume as described above.

Break-even point units
Break-even point $
Margin of safety $
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Solutions

Expert Solution

(a) Assuming no change :

Break even poitns (units) = Fixed Expenses/Contribution per unit = 174,900/25 = 6,996 units

Break even poitns ($) = 6,996 * 50 = $ 349,800

Margin of Safety Sales = Total Sales - Breakeven SaLES = 450,000 - 349,800 = 100,200

(B) Assuming changes

  

Revised selling prices 47
(50*94%)
Revised Sales (units) 10800
(9000*1.2)
Revised Contribution = 47 -25 = 22
Break even poitns (units) = Fixed Expenses/Contribution per unit = 174,900/22 = 7,950 units
Break even poitns ($) = 7,950 * 47 = $ 373,650
Margin of Safety Sales = Total Sales - Breakeven SaLES
Total Sales
(10,800 * $ 47)        5,07,600
Break even sales        3,73,650
Margin of safety sales       1,33,950

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