CVP Analysis: Sunspot Company manufactures and sells sunglasses. Price and cost data are as follows:

Required:

a. Sunspot Company estimates that its direct labor costs will increase 8 percent next year. How many units will Sunspot have to sell next year to reach break- even?

(1) 97,500 units. (2) 101.740 units. (3) 83,572 units. (4) 86.250 units. (5) Some other amount.

b. If Sunspot Company's direct labor costs do increase 8 percent, what selling price per unit of product must it charge to maintain the same contribution margin ratio?

(1) $25.51. (2) $27.00. (3) $25.40. (4) $26.64. (5) Some other amount.

Transcribed Image Text:

Selling price per pair of sunglasses $25.00 Variable costs per pair of sunglasses: Raw materials $11.00 Direct labor 5.00 Manufacturing overhead 2.50 Selling expenses 1.30 Total variable costs per unit $19.80 Annual fixed costs: Manufacturing overhead $192,000 Selling and administrative 276,000 Total fixed costs Forecasted annual sales volume $468,000 (120,000 pairs) Income tax rate $3,000,000 40%