Viejol Corporation has collected the following information a

Viejol Corporation has collected the following information after its first year of sales. Sales were $1,250,000 on 125,000 units, selling expenses $240,000 (40% variable and 60% fixed), direct materials $512,000, direct labor $20,900, administrative expenses $276,000 (20% variable and 80% fixed), and manufacturing overhead $362,000 (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.

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Viejol Corporation has collected the following information after its first year of sales. Sales were $1,250,000 on 125,000 units, selling expenses $240,000 (40% variable and 60% fixed), direct materials $512,000, direct labor $20,900, administrative expenses $276,000 (20% variable and 80% fixed), and manufacturing overhead $362,000 (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

Answers

Total

Variable cost

Variable cost per unit

Fixed Cost

[A]

[B = A x given % for variable cost]

[C = B / 125,000 units]

[D = A – B]

Selling Expenses

$                           240,000.00

$               96,000.00

$                                0.77

$                     144,000.00

Direct Materials

$                           512,000.00

$             512,000.00

$                                4.10

$                                       -  

Direct Labor

$                             20,900.00

$               20,900.00

$                                0.17

$                                       -  

Administrative expenses

$                           276,000.00

$               55,200.00

$                                0.44

$                     220,800.00

Manufacturing Overhead

$                           362,000.00

$             253,400.00

$                                2.03

Total

$                       1,410,900.00

$             937,500.00

$                                7.50

$                     364,800.00

Working

Current Year

Projected Year

A

Sales Revenue

$                       1,250,000.00

$         1,375,000.00

B

Variable cost

$                          937,500.00

$         1,031,250.00

C=A - B

Contribution Margin

$                           312,500.00

$             343,750.00

D [calculated above]

Fixed Cost

$                                                                   364,800.00

A [calculated in workings]

Fixed Cost

$                           364,800.00

B

Sale Price per unit

$                                     10.00

C [calculated in workings]

Unit Variable cost

$                                        7.50

D = B - C

Unit Contribution margin

$                                        2.50

E = A/D

Break Even Point in Units

                                    145,920

F = E x B

Break Even point in dollars

$                       1,459,200.00

A

Target Net Income

$                           216,000.00

B

Fixed Cost

$                           364,800.00

C=A+B

Total Contribution margin required

$                           580,800.00

D

Unit Contribution margin

$                                        2.50

E=C/D

Units to be sold to earn target income

                                    232,320

F=E x $10 sale price

Sales dollars required for target net income

$                       2,323,200.00

A [calculated above]

Sales dollars required for target net income

$                       2,323,200.00

B [calculated above]

Break Even point in dollars

$                       1,459,200.00

C = A - B

Margin of Safety Sales dollars

$                           864,000.00

D = (C/A) x 100

Margin of Safety Ratio

37.2%

	Total	Variable cost	Variable cost per unit	Fixed Cost
	[A]	[B = A x given % for variable cost]	[C = B / 125,000 units]	[D = A – B]
Selling Expenses	$                           240,000.00	$               96,000.00	$                                0.77	$                     144,000.00
Direct Materials	$                           512,000.00	$             512,000.00	$                                4.10	$                                       -
Direct Labor	$                             20,900.00	$               20,900.00	$                                0.17	$                                       -
Administrative expenses	$                           276,000.00	$               55,200.00	$                                0.44	$                     220,800.00
Manufacturing Overhead	$                           362,000.00	$             253,400.00	$                                2.03
Total	$                       1,410,900.00	$             937,500.00	$                                7.50	$                     364,800.00