Question
CVP Company produces two products: triangles and rectangles. The forecasted income for the coming year, according to product line, follows: Triangles (RM) Rectangles (RM)
CVP Company produces two products: triangles and rectangles. The forecasted income for the coming year, according to product line, follows:\ \ Triangles\ (RM)\ Rectangles\ (RM)\ Total\ (RM)\ \ Sales\ 300,000\ 2,500,000\ 2,800,000\ Less: Variable expenses\ (100,000)\ (500,000)\ (600,000)\ Contribution margin\ 200,000\ 2,000,000\ 2,200,000\ Less: Direct fixed expenses\ (28,000)\ (1,500,000)\ (1,528,000)\ Product margin\ 172,000\ 500,000\ 672,000\ Less: Common fixed cost\ \ \ (100,000)\ Operating income\ \ \ 572,000\ \ The selling prices are RM30 for triangles and RM50 for circles.\ \ REQUIRED:\ a) Compute the number of units of each product that must be sold for CVP Company to break even.\ b) Compute the revenue that must be earned to produce an operating income of 10 percent of sales revenue.\ c) Assume that the marketing manager changes the sales mix of two products so that the ratio is three triangles to five rectangles. Repeat requirements (a) and (b).\ d) Refer to the original data. Suppose that CVP Company can increase the sales of triangles with increased advertising. The extra advertising would cost an additional RM45,000, and some of the potential purchasers of rectangles would switch to triangles. In total, sales of triangles would increase by 15,000 units, and sales of rectangles would decrease by 5,000 units. Would CVP Company be better off with this strategy?
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