Question 3: CVP relationships The Precision Limestone Company produces thin limestone sheets that are used for the facings on buildings. As can be seen in the contribution margin statement, last year the company had a net profit of $157 500, based on sales of 1800 tonnes. The manufacturing capacity of the firms facilities is 3000 tonnes per year.

6. Ignore the facts presented in requirement 5. Assume that management estimates that the selling price per tonne will decline by 10 percent next year. Variable costs will increase by $40 per tonne, and fixed costs will not change. What level of sales (in dollars) would be required to earn a net profit of $94 500?

Precision Limestone Company Contribution margin statement Year ended 31 December Sales $900 000 Variable costs Manufacturing Selling $315 000 180 000 Total variable costs Contribution margin $495 000 $405 000 Fixed costs Manufacturing Selling Administrative $100 000 107 500 40 000 Total fixed costs Net profit $247 500 $157 500