Question

Comprehensive CVP analysis:

Bison Industries manufactures 16GB flash drives. The current sales volume is 100,000 units per month. Price and cost data for a relevant rage extending to 200,000 units per month is as follows:

Sales price per unit		$               25
Variable costs per unit:
Direct materials		$           8.40
Direct labor		$           8.00
Variable manufacturing overhead		$           3.70
Variable SG&A		$           1.90
Monthly fixed expenses:
Fixed manufacturing overhead		$    121,800
Fixed SG&A		$    167,100

1. Prepare a contribution margin format income statement in good form including per unit and ratio columns.
   
2. What is the company’s contribution margin per unit? Contribution margin ratio? Total contribution margin?
   
3. What would the company’s monthly operating income be if it sold 130,000 units?
   
4. What would the company’s monthly operating income be if it had sales of $4,000,000?
   
5. What is the breakeven point in units and dollars?
   
6. What is the current margin of safety in units and dollars?
   
7. How many units would the company have to sell to earn a target monthly profit of $260,100?
   
8. Management is currently in contract negations with the labor union. If the negotiations fail, direct labor costs will increase by 10% and fixed costs will increase by $23,500 per month. If these costs increase, how many units will the company have to sell each month to breakeven?

Answer 1

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