Ch5 Exercise - Cost-Volume-Profit Analysis

Lubin, Inc. manufactures and sells a reusable grocery shopping bag. The following are selected sales and cost data for the last quarter:

Selling price $80 per unit

Number of units sold 12,000 units

Contribution margin ratio 40%

Fixed costs $320,000

Required:

1.Compute the total variable costs incurred for the quarter.

2.What is the quarterly break-even point in the units sold and in sales dollars?

3.Prepare a contribution income statement for the quarter?

4.The company wants to earn target operating income of $60,000. How many units must be sold to achieve desired operating income?

5.If number of units sold is 15,000,

a.What is the margin of safety in units?

b.What is the margin of safety in dollars?

c.What is the margin of safety in percentage?

d.If sales were reduced 30%, would Lubin still make money? Why?

6.Company has decided to automate its sewing process. The automation will reduce direct labor costs by $8 per bag produced and increase fixed costs by $80,000 per quarter.

a.Compute the new break-even point in units sold and sales dollars.

b.How many units must be sold to achieve an operating income of $200,000 when automation is implemented?