Current Designs Problem 5

Bill Johnson, sales manager, and Diane Buswell, controller, at Current Designs are beginning to analyze the cost considerations for one of the composite models of the kayak division. They have provided the following production and operational costs necessary to produce one composite kayak.

Kevlar		$230	per kayak
Resin and supplies		$190	per kayak
Finishing kit (seat, rudder, ropes, etc.)		$160	per kayak
Labor		$450	per kayak
Selling and administrative expensesvariable		$400	per kayak
Selling and administrative expensesfixed		$172,400	per year
Manufacturing overheadfixed		$280,000	per year

Bill and Diane have asked you to provide a cost-volume-profit analysis, to help them finalize the budget projections for the upcoming year. Bill has informed you that the selling price of the composite kayak will be $2,300.

Calculate variable costs per unit.

Variable costs

$

per unit

Determine the unit contribution margin.

Contribution margin

$

per unit

Using the unit contribution margin, determine the break-even point in units for this product line.

Break-even point

units

Assume that Current Designs plans to earn net income of $378,450 on this product line. Using the unit contribution margin, calculate the number of units that need to be sold to achieve this goal.

Number of units to be sold

units

Based on the most recent sales forecast, Current Designs plans to sell 1,000 units of this model. Calculate the margin of safety and the margin of safety ratio. (Round percentage to 1 decimal place, 25.5%.)

Margin of safety		$
Margin of safety ratio			%

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