Vines and Daughter manufactures and sells swimsuits for $40 each. The estimated income statement for 2017 is

Question:

Vines and Daughter manufactures and sells swimsuits for $40 each. The estimated income statement for 2017 is as follows:

Sales ............................................$2,000,000
Variable costs ...............................1,100,000
Contribution margin .......................900,000
Fixed costs .......................................765,000
Pretax earnings............................ $ 135,000

REQUIRED

A. Compute the Contribution margin per swimsuit and the number of swimsuits that must be sold to break even.
B. What is the margin of safety in the number of swimsuits?
C. Suppose the margin of safety was 5,000 swimsuits in 2016. Are operations more or less risky in 2017 as compared to 2016? Explain.
D. Compute the Contribution margin ratio and the breakeven point in revenues.
E. What is the margin of safety in revenues?
F. Suppose next year’s revenue estimate is $200,000 higher. What would be the estimated pretax earnings?
G. Assume a tax rate of 30%. How many swimsuits must be sold to earn after-tax earnings of $180,000?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...