Project 1 CVP Income Statement 10 points Instructions Prepar

Project 1: CVP Income Statement (10 points) Instructions: Prepare your solutions in Excel, and uplood your Excel file to Moodle by the deadline specified by your instructor. Do NOT email your filel The following information pertains to Crescent City, a lawn mower manufacturer: Budgeted production costs for the coming year Direct materials per mower Direct labor per mower Variable overhead per mower Total fixed overhead $275 130 70 44,750 Budgeted selling and administrative costs for the coming year: Fixed selling& admin expense Sales commission per mower $62,000 75 S CM In the coming year, Crescent City plans to produce and sell 1,500 mowers at a price of $725 each. Instructions for Project 1: NI 1. Prepare a CPV income statement 2. Calculate the breakeven point in units and sales dollars. 3. Calculate the margin of safety. 4. Calculate the margin of safety ratio. 5. If Crescent City wants to earn net income of $200,000, how many units must Dt43 1753 it sell?

Solution

1) Total variable cost per mower = Direct materials+Direct labor+Variable OH+Sales commission

= $275+$130+$70+$75 = $550 per mower

CPV Income Statement (Amounts in $)

2) Contribution margin per mower = Sale price per mower - Variable cost per mower

= $725 - $550 = $175 per mower

Break Even Units = Total Fixed Cost/Contribution margin per mower

= $106,750/$175 per mower = 610 mowers

Break Even Point in dollars = Break even units*Sale price

= 610 mowers*$725 = $442,250

3) Margin of safety = Current Sales - Break Even Sales in dollars

= $1,087,500 - $442,250 = $645,250

4) Margin of safety units = Total units sold - Break even units

= 1,500 - 610 = 890 units

Margin of Safety ratio = 890 units/1,500 units = 0.5933 or 59.33%

5) Units need to sold = Required Contribution Margin/Contribution margin per unit

= (Fixed cost+Required net income)/Contribution margin per unit

= ($106,750+$200,000)/$175 = 1,753 mowers

Sales (1,500 mowers*$725 per mower)	1,087,500
Less: Variable cost (1,500 mowers*$550 per mower)	(825,000)
Contribution Margin	262,500
Less: Fixed cost (44,750+62,000)	(106,750)
Net Income	155,750