Question

Problem #1- 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.

Answer 1

		Sales Price	800.00
		Less: Variable Cost	445.00	(220+140+85)
		Contribution Margin	355.00
		Fixed Costs	850000
	A	BEP in Units:
		Fixed Costs	850000	A
		Contribution Margin	355.00	B
		Break Even Point	2394.366	A/B
		Sale Value	1915493	(BEP Units*800)
		Variable Cost at BEP	1065493	(BEP Units*445)
		Contribution Margin	850000
		Less: Fixed Cost	850000
		Net Income	0
	B	Sales Price	800.00	A
		Less: Variable Cost	445.00	B
		Contribution Margin	355.00
		Contribution Margin Ratio	44.38%	A/B*100
		BEP in Units:
		Fixed Costs	850000	A
		Contribution Margin Ratio	44.38%	B
		Break Even Point	1915493	A/B
	C	Target Net Profit	300000
		Add: Fixed Costs	850000
		Total Contribution Margin Required	1150000	A
		Contribution Margin	355.00	B
		No of Units to be Sold	3239.437	A/B
	D	Target Net Profit After Tax	110000
		Add: Tax	73333.33	(Net Income Before Tax *40%)
		Target Net Profit Before Tax	183333.3	(110000/(1-40%))
		Add: Fixed Costs	850000
		Total Contribution Margin Required	1033333	A
		Contribution Margin	355.00	B
		No of Units to be Sold	2910.798	A/B