STRATEGIC COST MANAGEMENT - BREAK-EVEN POINT AND CVP ANALYSIS

Cornwell Company is in business since 2010, makes swimwear for professional athletes. Analysis of the firm's record for the year reavelas the following:

Average swimsuit selling price $140

Average swimsuit expenses:

Direct Material $60

Direct labor 25

Variable overhead 15

Annual fixed cost:

Selling $20,500

Administrative 48,000

The company's tax rate is 40 percent. Daisy Rin, company president, has asked you to help her answer: How much revenue must be generated to realize $79,900 of pre-tax earnings? How many swimsuits would this level of revenue represent?

Expert Solution

Target Sales Revenue = Fixed Costs + Target profit/Sales Price (per unit) - Variable Cost (per unit)/Sales Price

= $68,500 + $79,900/$140-$100/$140

= $148,400/0.28571428571

= $519,425.97

Units = Target Sales Revenue/Sales Price unit

= $519,425.97/$140

= 3,710.1855 or 3,710 swimsuits

$519,425.97 is the target sales revenue

3,710.1855 or 3,710 swimsuits in this revenue

Yssah Rose Dimagiba answered 3 years ago

STRATEGIC COST MANAGEMENT - BREAK-EVEN POINT AND CVP ANALYSIS

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STRATEGIC COST MANAGEMENT - BREAK-EVEN POINT AND CVP ANALYSIS

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