CVP case % of Sales Managerial Accounting Rebman You are asked by an associate to help evaluate her business. She owns a business that produces a number of parts that are used by companies that manufacture specialized machinery. The industry has been slow for some time, and she is worried that if business slows down too much, they will be in a loss position. Their cost structure includes both fixed and variable costs. They manufacture a large number of different parts, so that it is not feasible to calculate break even volumes using the quantity of parts. Instead, sales and expense data are available. Your calculations and results will be in terms of dollars, rather than units. Following are some of the relevant cost data: The following data are based on the current budget. As a % of Amount Sales Sales 850,000 100.0 % COGS: VC (DM, DL, OH) 260,000 30.6 % Fixed costs 125,000 14.7% 385,000 45.3% Gross Profit 465,000 54.7 % Operating expenses: Sales commissions 42,500 5.0% Salaries 175,000 20.6% Office rent, utilities 24,000 2.8% 0.4 % 3,600 Insurance Other fixed expenses Other variable expenses 60,000 7.1 % 85,000 10.0% 45.9% 390,100 Operating income 74,900 8.8% 1. Required: Calculate BE volume. 2. What if: the company has an option to purchase newer equipment that will reduce materials waste in the manufacturing process. The new equipment will add 25,000 per year in equipment lease costs, but reduce RM costs by 2.0 % of sales. Is this a good investment? What is the impact on the company's BE point? CVP NofSales