Problem 62A Part Level Submission Lorge Corporation has coll

Problem 6-2A (Part Level Submission)

Lorge Corporation has collected the following information after its first year of sales. Sales were $900,000 on 90,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $76,100; direct labor $240,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $357,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

(a)

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(b)

Problem 6-2A (Part Level Submission) Lorge Corporation has collected the following information after its first year of sales. Sales were $900,000 on 90,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $76,100; direct labor $240,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $357,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

Solution

Unit sales price =900000/90000= $10 Total variable cost = (250000*40%)+76100+240000+(270000*20%)+(357000*70%)= $720000 Unit variable cost = 720000/90000 = $8 Total fixed cost = (250000*60%)+(270000*80%)+(357000*30%)= $473100 CM ratio = (10-8)/10= 20% a Contribution margin for current year = 90000*(10-8) = $180000 Contribution margin for projected year = 90000*1.1*2= $198000 b Break-even point = 473100/(10-8)= 236550 units Break-even point = 236550*10 = $2365500