LAB INSTRUCTIONS:

Respond to the questions below. Use Excel to calculate your answersdo not do your calculations on paper and merely type your answers into your spreadsheet. When I click on your answers, I should be able to see the formula you used. In addition, rather than typing numbers into your formulas for amounts that already appear on your spreadsheet, use cell references instead.

OBJECTIVES:

Use various cost volume profit analysis tools to develop projected data.

Prepare a contribution margin income statement

Analyze projected data for decision making

Tyrene Products manufactures recreational equipment. One of the companys products is a skateboard which has been profitable for the company in the past. The skateboards are produced in an old facility and production relies heavily on direct labor, thus variable costs are quite high. During the past year, the company sold 40,000 skateboards (see income statement on template). Management is anxious to maintain if not improve its present level of income from this product.

REQUIRED:

1. In the column next to the income statement on your template, show per unit amounts (except for fixed costs and NI).

2. Compute the CM ratio and the break-even point in dollars and skateboards (units).

3. What is the margin of safety in dollars? What is the margin of safety percentage?

4. Due to an increase in labor rates, the companys variable costs will increase by $3 per skateboard next year. If the selling price is not raised, what will be the new CM/unit, CM ratio and break-even point in skateboards?

5. Referring to the information in #4, complete the income statement on your template. Include per unit amounts (except for fixed costs and NI).

6. Again, referring to the information in #4, how many skateboards will have to be sold to earn the same net operating income as last year?

7. Refer to the original data. The company is considering the construction of a new automated plant to manufacture the skateboards in order to avoid the increase in labor cost. The new plant would slash variable costs by 40%, but it would cause fixed costs to increase by 90%. If the new plant is constructed and next year the company manufactures and sells 40,000 skateboards (the same number as last year), prepare a contribution income statement, and show appropriate per unit amounts in the designated column next to your income statement.

8. If the new plant is built, what would be the new CM/unit and new break-even point in skateboards?

9. If the new plant is built, how many skateboards will have to be sold next year to earn the same net operating income as last year?

**** PLEASE SHOW FORMULAS USED TO ARRIVE AT EACH ANSWER ***

				#1		#5			#7
			40,000	Per Unit		40,000	Per Unit		40,000	Per Unit
	Sales revenue		1,500,000
	Variable expenses		900,000
	Contribution margin		600,000
	Fixed expenses		480,000
	Net operating income		120,000
#2.	CMR
	B-E $
	B-E units
#3.	MofS-$
	MofS-%
#4.	CM/unit
	CMR
	B-E units
#6.	Target sales-units
#8.	CM/unit
	B-E units
#9.	Target sales-units