Despite these challenges, management is under pressure to deliver an increase of 5 % over 2020's Income Before Taxes, in spite of the global pandemic. Situation as of Year-End 2020: Sales Price: 1 (one) Eco Cleaning Wizard sells for $495. Sales Volume: 5,200 Wizards were sold this past year. Current capacity: 8,000 units (there is no plan (or budget) to expand operating capacity for 2021) Fixed Costs: Manufacturing Overhead: Facility Rent: $240,000 Management Salaries: $300,000 Depreciatiop, machinery: $40,000 Maintenance and repair: $20,000 Other overhead expenses: $64,000 Selling and Administrative Costs: Taxes and insurance: $85,000 Sales salaries: $185,000 Variable Costs: Manufacturing Costs: Materials: $125 per unit Labor: $78 per unit Employee Benefits: $13 per unit Other Overhead: $20 per unit Selling and Administrative Costs: Delivery expenses: $22 per unit Sales commissions: $49 per unit Here are the three independent scenarios that are possible: Scenario 1: One of the raw materials used to make the Wizard increases by $15 per unit. I Scenario 2: Competition requires you to reduce prices by $10 per unit. (Assume no effect on volume) Scenario 3: This is your choice come up with your own scenario. (Note: do not go above the company's operating capacity. REQUIRED: Cost-Volume-Profit Analysis Current vs Projected 1. 2020 CVP: Using the Excel spreadsheet file perform the following calculations using the information as of the end of 2020: (8 Points) A) Contribution Margin B) Break Even in Units C) Break Even in Dollars D) Total Sales E) Margin of Safety in Dollars F) Margin of Safety in Units G)Degree of Operating Leverage H) Income Before Taxes 2. Projected 2021 CVP: For each of the three scenarios on the previous page provide the following projected calculations for 2021: (4) Points) A) Contribution Margin B) Break Even in Units C) Break Even in Dollars D) Total Sales E) Margin of Safety in Dollars F) Margin of Safety in Units G) Degree of Operating Leverage H) Income Before Taxes 3. Highlight in which scenario(s) will result in at least an 5% increase in Income before taxes. (2) 4. IN THE BOX AT THE BOTTOM OF THE EXCEL FILE, PLEASE TELL ME WHICH OF THE THREE SCENARIOS PROVIDES FOR THE LARGEST INCREASE ABOVE 2020'S INCOME BEFORE TAXES AND ALSO EXPLAIN YOUR OWN SCENARIO IN DETAIL SOICAN TELL WHAT YOU DID.(6) This is your CVP Analysis own scenario Scenario 3 Actual 2020 Scenario 1 Scenario 2 Sales Price per Unit Quantity Sold S 16 Fixed Costs Please enter as total $) * Facility Rent Management Salaries Depreciation, Machinery * Maintenance and Repairs * Other overhead expenses 1 Taxes and Insurance 1 Sales salaries 1 Total Fixed Costs 20 Variable Costs/Please enter as per unit) 2 Materials 22 Labor - Employee benefits * Utilities Delivery 2 Sales Commissions Total Variable Costs per Unit 30 Results Contribution Margin Per Unit Break Even in Units 3 Break Even in Dollars Total Sales Margin of Safety in Dollars Margin of Safety in Units * Degree Operating Leverago Income Before Income Taxes 2 % Change in Income compared to 2020 10 Use this space to to answer the following: 1. Please explain what assumptions you made in Scenario 3 (Make Up Your Own Assumption), 41
