Question

FOR: X=5, Y=3, z=6, t=5

Company X has collected the following information after its first year of sales. Sales were TL1,6x0,000 on 1z0,000 units. Selling expenses were TL2t5,000 of which 4x% was variable. Direct materials were TL490,000 and direct labor were TL290,000. Administrative expenses were TL270,000 of which 2z% was variable. MOH was TL38t,000 of which 7x% was variable.

(a) (9 points) Without using CVP Income Statement, compute contribution margin, unit contribution margin and the contribution margin ratio.

(b) (7 points) Prepare a CVP income statement for both per unit, total and percent of sales terms and check your answers to Part (a) are correct.

(c) (8 points) Management expects all costs and selling price to remain same while sales to increase 1z% 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) (8 points) Give a CVP income statement for the next year for the foreseen increase and check your answers to Part (c) are correct.

(e) (8 points) Calculate breakeven point in units both with the mathematical and unit contribution margin method.

(f) (8 points) Calculate breakeven point in TL both with the mathematical and contribution margin ratio method. Cross check your answer by preparing a CVP Income Statement. CVP should give 0 net income.

(g) (8 points) Calculate units to be sold to achieve a target net income of TL200,000 both with the mathematical 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) (8 points) Assuming that the company meets its target net income in Part (g), what is the margin of safety both in TL and percent of sales?

Hint 1

In Part - c ,

The question states "Management expects all costs and selling price to remain same...". This implies total fixed costs and unit variable costs remain the same. (If you change the production/sales level, your total variable costs will change.)

UCM (p-c) and CMR (1-c/p) only change if selling price (p) and/or unit variable cost (c) changes. CM, on the other hand, is a function of price, unit variable cost and units sold (it is (p-c)*x). Thus, given a change in x, CM changes even if p or c stays the same.

Answer 1