CVP Analysis Case Study Case 1: Globals Co. faces many situations where it needs to apply the decision tools presented in our chapter, such as calculating the break-even point to determine a product's profitability. Assume that Global's management was provided with the following information regarding the production and sales of tables for 2020. Cost Schedules Variable costs $8.00 $4.00 $3.00 $15.00 Direct labor per table Direct materials Variable overhead Variable cost per table Fixed costs Manufacturing Selling Administrative Total fixed costs Selling price per table Sales, 2020 $10,000.00 $5,000.00 $4,500.00 $19,500.00 $40.00 2,400 Units Requirements: 1. Prepare a CVP income statement for Globals for the month of July. Provide (a) per unit values and (b) total values. (Rubric: 1 mark for the correct formulas and calculations, 1 mark for the income statement table and 1for the correct answer. Total 3 marks) 2. What is the contribution margin ratio? (Rubric: 1 mark for the correct formula and the calculations and 1 for the correct answer. Total 2 marks) 3. What is the break-even point in (a) dollars and (b) Units? Use the Contribution Margin Technique (Rubric: 0.5 mark for the correctformulas, 1 mark forthe calculations and 05 for the correct answer for botha and b. Total 2x2 - 4 marks) 4. What are the required sales in (a) dollars and (b) Units for Globals assuming a target net income of $75,000? Use the Contribution Margin Technique. (Rubric: 0.5 mark for the correctformulas, 1 mark for the calculations and 05 for the correct answer for both a and b. Total 2x2 - 4 marks) 5. Assume that management set the sales target for the year 2021 at a level of $136,000 (3,400 tables). Global's management believes that to attain the sales target in 2021, the company must incur an additional selling expense of $5,000 for advertising in 2021, with all other costs remaining constant. What will be the break- even point in sales dollars for 2021 if the TFC of the company will be $24,500? (Rubric: 2 markfor the correct formula and the calculations and 1 forthe correct answer. Total 3 marks) 6. What is the margin of safety in (a) dollars and the (b) margin of safety ratio? (Rubric: 0.5 mark for the correctformulas, 1 mark for the calculations and 0.5 for the correct answer for botha and b. Total 2x2 =4 marks Case 2: RXY Co., a manufacturer of electronic tablets. The below Illustration presents relevant data for the tablets sold by this company in 2019. Sales Price Variable Costs Fixed Costs Sales $25 per tablets $15 Per Unit $135,000 20,000 Units Instructions: (Use the Equation method only) a. What is the Net income for 2019? (Rubric: 1 mark for the correct formula and the calculations and 1 for the correct answer. Total 2 marks) b. What is the break-even point in (1) units and (2) dollars for 2019? (Rubric: 1 mark for the correct formula and the calculations and 1 forthe correct answer. Total 2 marks) c. I. Assume that management set the sales target for the year 2020 at a level of $550,000 (22,000 tablets). RXY's management believes that to attain the sales target in 2020, the company must incur an extra fixed expense of $10,000 for promotion in 2020, with all other costs remaining the same. What will be the break- even point in sales dollars for 2020 if the company spends the extra $10,000 on fixed costs? (Rubric: 2 mark for the correct formula and the calculations and 1 for the correct answer. Total 3 marks) If the company spends the additional $10,000 for promotion in 2020, what is the sales level in dollars and units required to equal the 2019 Net income you calculated in part a? (Rubric: 2 mark for the correct formula and the calculations and 1 for the correct answer. Total 3 marks) II. Analytical Questions Aysha Bakery specializes in selling European bread and deserts. The bakery reports the following total costs at two levels of production. 5,000 Units 10,000 Units Sugar used for making $10,000 $20,000 bread and deserts Marketing on Social Media 4,000 4,000 A French Baker to make 17,000 34,000 customed cakes Indirect materials 1,000 2,000 Taxes 6,000 6,000 Depreciation 1,500 1,500 Requirements: 1. Classify each cost as variable or fixed. Justify Your answer. (Rubric: 0.5 mark for each correct classification and 1 for the correct Justification. Total 4 marks)
