Blueprint Problem: CVP and the Contribution Margin Income Statement

APPLY THE DONCEP'I'S: Prepare a contribution margi income statement Assume that you are part of the accounting team for Best Manufacturing. The company has only one product that sells for $40 per unit. Best estimates total xed coss to be $3,700. Best estimates direct materials cost of $12.00 per unit, direct labor coss of $15.00 per unit, and variable overhead costs of $3.00 per unit. The CEO would like to see what the gross margin and operating income will be if 600 units are sold in the next period. Prepare a contribution margin income statement. Best Manufacturing Contribution Margin Income Statement Hide Feedback v Check My Work Feedback Apply the numbers given in this section to the format determined in the section above. Total revenues will be equal to the unit sales price times the number of units sold. The total variable cost will be equal to the total of all variable unit costs times the number of unis sold. CVP Analylil and the Break-Even Point in Sale! Dollars cw analysis focuses on selling price, units sold, variable cost per unit, and total xed costs. Managers can use the contribution margin format to understand the effects of changes in any of these areas. Contribution margin is the amount that is available to pay 9 coss. After those coss are paid, anything remaining from contribution margin becomes 9. A business can determine the level of sales needed to cover all coss by knowing the break-even point. The break-even point is Where 9- This Phiht can he expressed as the ."_"E!'!'_=_V_=E'_P__i"*_i_"_\"_"_i! or the Heels-9w: P 1. Calculate the comuutio '1'.\" n sale: dollars. The following formulas are used to calculate the break-even point in sales dollars: : Selling Price Variable Cost per Unit Contribution Margin per Unit Selling Price 3. Compute the break-even point in sales dollars: Total Fixed Costs Contribution Margin Ratio how A Foodhlck APPLY THE CONCEPTS: Calculate the break-even point in sales dollars for Best Manufacturing Further analysis of Best Manufacturing's xed costs revealed that the company actually faces annual xed overhead costs of 54,200 and annual xed selling and administrative costs of 51,5110, Variable cost estimates are correct: direct materials cost, $12 per unit; direct labor costs, $15 per unit; and variable overhead costs, $3 per unit. At this time, the selling price of $40 will not change. Complete the following formulas for the revised xed costs. Enter the ratio as a percentage, Contribution Margin perUnit = $ \"IQ $ 30 Q = $ 10 9 Contribution Margin Ratio = $ no Q = 25 9% s 409 Now complete the formulas for (1) the break-even point in sales dollars and (2) the units sold at the break-even point. To calculate this, divide the break-even point in sales dollars by the unit selling price. Break-Even Point in Sales Dollars = 5 soon 9 = 5 24000 9 25 @% Units Sold at Break-Even Point = @ units Assume that the number ofunits that Best sold exceeded the break-even point by one (1). How much would operating income be? 5 109 what would operating income be if the units sold exceeded the break-even point by ve (5) units? 5 2 0 APPLY THE CONCEPTS: use the we graph to analyze the effects of changes in price and costs Graph the following on your own paper. At the original position, the break-even point in sales dollars is $24,000 at 500 units. The xed oosts are $5,000, Assume the slope of the sales H e is equal to the selling price, when the two points of the sales line are at the origin and the break-even point, you see that the slope of the line is $43, which means that the selling price is s as 9. when the two points or the total costs line are at the origin and the break-even point, you see that the slope or the line is $32.00, which means that the variable cost per unit is $ 1.5 0, Leave the breakeven point (x) at its original position. Use it as a reference point to answer the following questions, Analyze the scenarios by sliding the points on the lines to get the slope desired. Recall that the new break-even point ror each scenario exists where the sales and total costs lines intersect. Compare it to the original break-even point (x). (Ynu may want to put the lines back to theiroriginal position ror each scenario.) Each scenario should be considered independently. 1. The campany purchases a xed asset and increases Fixed costs by $2,000. Variable casts remain the same, which means that the slnpe dnes n0t change. This will cause the break-even paint to g, which means that break-even point in sales dollars 9, 2. A new supplier can provide a product 0f equal quality at $4.00 per unit less than the current direct materials cost. If the new supplier is used, the slope 0f the total costs line will be $ 1: 0, and the break-even point in sales dollars 9, 3. Market research shows that a price increase will decrease the number of units sold. A price increase will cause the slope of the sales line to 9, which means that- 9 units will need to be sold to break even. 9. But internal analysis shows that this price increase will cause the break-even paint in sales to shift to the