CVP breif exercises

Question 1

F manufacturing co has sales of $2.5 million for the first quarter. in making the sales the company incurred the following
Variable Fixed
COGS 850,000 450,000
Selling exp 140,000 65,000
Admin exp 70,000 90,000
prepare a cvp income statement for quarter ending march 31, 2012

Answer 1

FONTILLAS MANUFACTURING INC.
CVP Income Statement
For the Quarter Ended March 31, 2012
Sales………………………………………………..$2,500,000
Variable costs ($850,000 + $140,000 + $70,000) .. 1,060,000
Contribution margin……………………………………… .1,440,000
Fixed costs ($450,000 + $65,000 + $90,000)……… 605,000
Operating income…………………………… $ 835,000

Question 2

Panciuk Co. has a unit selling price of $650, variable cost per unit of $350, and fixe csot of $180,000. calculate the breakeven point in units using a) math and b) CM per unit

Answer 2

(a) 
$650Q = $350Q + $180,000 + $0
$300Q = $180,000
Q = 600 units
(b) 
Contribution margin per unit is $300 ($650 – $350)
Q = $180,000 ÷ $300
Q = 600 units

Question 3

A firm sells its product for $30 per unit. its direct material costs are $6 per unit and direct labour costs are $4. MOH costs are $40,000 per period and $8 per unit. calculate the required sales in dollars to breakeven.

Answer 3

Contribution margin ratio = [($30 – $18) ÷ $30] = 40%

Required sales in dollars = $40,000 ÷ 40% = $100,000

Question 4

For biswell Co variable cost are 55% of sales and fixed costs are $210,000. calculate the required sales in dollars that are needed to achieve management’s target operating income of $80,000. Use CM approach

Answer 4

If variable costs are 55% of sales, the contribution margin ratio is ($1 –
$0.55) ÷ $1 = 45%.
X = ($210,000 + $80,000) ÷ 45%
X = $644,444

Question 5

for Korb co. actual sales are $1.2 million and breakeven sales $840,000. calculate a) the margin of safety in dollars and b) the margin of safety in units

Answer 5

(a) Margin of safety in dollars = $1,200,000 – $840,000 = $360,000
(b) Margin of safety ratio = $360,000 ÷ $1,200,000 = 30%

Question 6

NYX Inc. sells its product for $24 per unit and VC are $14 per unit. its fixed csots are $130.00o. Calculate the required sales in units to achieve its target Operating income of 10% of total costs

Answer 6

Contribution margin per unit is $10.00 ($24.00 – $14.00).
$10Q = $130,000 + .10($130,000 + $14Q)
$10Q = $143,000 + $1.4Q
X = 16,628 units (rounded)

Question 7

Calculate the breakeven point in dollars for each company
Finch Co Sparrow Co
Sales $150,000 $150,000
VC 60,000 15,000
CM 90,000 135,000
FC 50,000 95,000
OP income $40,000 $40,000

Answer 7

Break-even for Finch Co.: $50,000 ÷ ($90,000 ÷ $150,000) = $83,3341
Break-even for Sparrow Co.: $95,000 ÷ ($135,000 ÷ $150,000) = $105,5561
Sparrow Co. is more highly leveraged, so their break-even point will be
higher. This is risky in an unstable market, but could result in higher
returns once they reach break-even. Finch Co. has taken a more
conservative approach. They will reach break-even faster, but their income
on sales above that point will be less.

Question 8

Family furniture co. has two divisions: bedroom and Dining room. The results are
Bedroom Dining Room
Sales $500,000 $750,000
VC 250,000 450,000
CM $250,000 $300,000
Determine the company’s weighted average CM ratio.

Answer 8

Sales mix %: Bedroom: $500,000 ÷ ($500,000 + $750,000) = 40%
Dining Room: $750,000 ÷ ($500,000 + $750,000) = 60%
Contribution margin ratio: Bedroom: $250,000 ÷ $500,000 = 50%
Dining Room: $300,000 ÷ $750,000 = 40%
Weighted-average contribution margin ratio:
(40% × 50%) + (60% × 40%) = 44%

Question 9

Russell corp sells 3 different models A12 sells for $50 and has VC of $40, B22 sells for $100 and VC of $70 and C124 sells for $400 ad has VC of $300. The sales mix of the 3 models is A12 - 60%, B22 - 25% and C124 - 15% what is the weight average unit CM?

Answer 9

Per unit: A12 B22 C124
Sales $50.00 $100.00 $400.00
Less: vc $40.00 $70.00 $300.00
CM $10.00 $30.00 $100.00
Sales mix 60% 25% 15%
Weighted-average unit
contribution margin = ($10 × 60%) + ($30 × 25%) + ($100 × 15%)
= $28.50

Question 10

Presto Candle makes candles. the sales mix (as a percentage of total dollar sales) of its 3 product lines is birthday candles 30% standard tapered candles 50% and large scented candles 20%. the CM ratio of each candle type is

Candle type                     CM Ratio
birthday                            10%
standard tapered               20%
large scented                    45%
if the company's fixed costs are $440,000 per year, what is the dollar amount of each type of candle that must be sold to breakeven?

Answer 10

Weighted-average contribution margin ratio =
(30% × 10%) + (50% × 20%) + (20% × 45%) = 22%

Break-even in sales dollars = $440,000 ÷ 22% = $2,000,000

Birthday: $2,000,000 × 30% = $600,000

Standard tapered: $2,000,000 × 50% = $1,000,000

Large scented: $2,000,000 × 20% = $400,000