Question

Company X has collected the following information after its first year of sales. Sales were TL1,650,000 on 120,000 units. Selling expenses were TL245,000 of which 45% was variable. Direct materials were TL490,000 and direct labor were TL290,000. Administrative expenses were TL270,000 of which 22% was variable. MOH was TL384,000 of which 75% was variable.

a) Without using CVP Income Statement, compute contribution margin, unit contributionmargin and the contribution margin ratio.

b) Prepare a CVP income statement for both per unit, total and percent of sales terms andcheck your answers to Part (a) are correct.

c) Management expects all costs and selling price to remain same while sales to increase 12% next year. Without using CVP Income Statement, determine change in net income using both the unit contribution margin and contribution margin ratio methods with the values you found in Part (a).

d) Give a CVP income statement for the next year for the foreseen increase and check youranswers to Part (c) are correct.

e)Calculate breakeven point in units both with the mathematical and unit contribution marginmethod.

f) Calculate breakeven point in TL both with the mathematical and contribution margin ratiomethod. Cross check your answer by preparing a CVP Income Statement. CVP should give 0 net income.

g) Calculate units to be sold to achieve a target net income of TL200,000 both with themathematical and unit contribution margin method. Calculate sales in TL to achieve this target both with the mathematical and contribution margin ratio method. Cross check your answer by preparing a CVP Income Statement. CVP should give the target net income.

h) Assuming that the company meets its target net income in Part (g), what is the margin ofsafety both in TL and percent of sales?

Answer 1