Question

Current Designs Problem 5 Bill Johnson, sales manager, and Diane Buswell, controller, at Current Designs are beginning to analyze the cost considerations for one of the composite models of the kayak division. They have provided the following production and operational costs necessary to produce one composite kayak. Kevlar® $230 per kayak Resin and supplies $190 per kayak Finishing kit (seat, rudder, ropes, etc.) $160 per kayak Labor $450 per kayak Selling and administrative expenses—variable $400 per kayak Selling and administrative expenses—fixed $172,400 per year Manufacturing overhead—fixed $280,000 per year Bill and Diane have asked you to provide a cost-volume-profit analysis, to help them finalize the budget projections for the upcoming year. Bill has informed you that the selling price of the composite kayak will be $2,300.

Calculate variable costs per unit. Variable costs $ per unit

Determine the unit contribution margin. Contribution margin $ per unit

Using the unit contribution margin, determine the break-even point in units for this product line. Break-even point units

Assume that Current Designs plans to earn net income of $378,450 on this product line. Using the unit contribution margin, calculate the number of units that need to be sold to achieve this goal. Number of units to be sold units

Based on the most recent sales forecast, Current Designs plans to sell 1,000 units of this model. Calculate the margin of safety and the margin of safety ratio. (Round percentage to 1 decimal place, 25.5%.) Margin of safety $ Margin of safety ratio % Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer :-

· All working forms part of the requirements

· Requirement 1,2 and 3

A	Selling Price per kayak		$2,300
	Variable cost per kayak:
	Kevlar	$230
	Resin & Supplies	$190
	Finishing kit	$160
	Labore	$450
	Selling & Admin expense	$400
B	Total Variable cost per kayak		$1,430	[Requirement 1]
C = A - B	Contribution margin per kayak		$870	[Requirement 2]
	Fixed Cost:
	Selling & Admin expense	$172,400
	Manufacturing overhead	$280,000
D	Total Fixed Cost		$452,400
E = D/C	Break even point		520	[Requirement 3]

· Requirement 4

A	Total Fixed Cost	$452,400
B	Target net income	$378,450
C = A+B	Total contribution margin required	$830,850
D	Contribution margin per kayak	$870
E = C/D	Number of units to be sold	955	[Requirement 4]

· Requirement 5 and 6

A	Units to be sold	1000
B	Break even point	520
C = A - B	Margin of safety units	480
D = C x $ 2,300	Margin of Safety in dollar	$1,104,000	[Requirement 5]
E = (C/A) x 100	Margin of Safety Ratio	48%	[Requirement 6]