Question

I have the answer to part A to D. I need the answer to the rest. Please help.

CVP and Sensitivity Analysis (Single Product). Victoria, Inc., has annual fixed costs totaling $240,000 and variable costs of $6 per unit. Each unit of product is sold for $30. Victoria expects to sell 12,000 units this year (this is the base case).

Required:

1. Find the break-even point in units.

2. How many units must be sold to earn an annual profit of $100,000? (Round to the nearest unit.)

3. Find the break-even point in sales dollars.

4. What amount of sales dollars is required to earn an annual profit of $140,000?

5. Find the margin of safety in units and in sales dollars.

6. Prepare a contribution margin income statement for the base case.

7. What will the operating profit (loss) be if the sales price decreases 30 percent? (Assume total sales remains at 12,000 units.)

8. Go back to the base case. What will the operating profit (loss) be if the variable cost per unit increases 10 percent? (Assume total sales remains at 12,000 units, and round to the nearest cent where appropriate.)

Answer 1

(e) Margin of safety

Break even point = Fixed cost/ Contri p.u

= 240,000/ (30 - 6) = 10,000 units or $300,000

Units sold right now = 12,000 units

Hence, Margin of safety (units) = (12,000 - 10,000) = 2000 units

Margin of safety (in dollars) = (360,000 - 300,000) = $60,000

(f) Income statement

Sales [12,000 x 30]	360,000
Less: Variable cost [12,000 x 6]	(72,000)
Contribution margin	288,000
Less: Fixed cost (given)	(240,000)
Profit	48,000

(g) If the sales price decrease by 30%, new sales price = $30 x (1 - 30%) = $21. Rest all remaining constant as in step (f) , here is the updated Income statement

Sales (12,000 x 21)	252,000
Less: Variable cost	(72,000)
Contribution margin	180,000
Less: Fixed cost	(240,000)
Profit	(60,000)

(h) If the variable cost increase by 10%, new variable cost per unit = $6 x 1.10 = $6.60. Rest all remaining constant as in step (f), here is the updated Income statement

Sales	360,000
Less: Variable cost (12,000 x 6.60)	(79,200)
Contribution margin	280,800
Less: Fixed cost	(240,000)
Profit	40,800