Question
Section 4: Cost-Volume-Profit Analysis 18 marks Boutique sells two types of products: Satin Dress and Silk Dress. Information about the expected sales volume, selling
Section 4: Cost-Volume-Profit Analysis 18 marks Boutique sells two types of products: Satin Dress and Silk Dress. Information about the expected sales volume, selling price and variable cost per unit of the products are as follows: Satin Dress Silk Dress Budgeted monthly sales 180 120 Selling price 340 480 Variable cost per unit Direct material 70 100 150 300 Conversion costs The expected monthly fixed cost is $11,000. Assume that Boutique pays income taxes of 28% and that fixed costs remain constant regardless of the number of product lines. Required: 1. Assume that only Silk Dress is sold. Calculate the following: (a) Break-even in dollars. (3 marks) (b) Target sales volume in units, assuming a target profit of $6,000 after tax. (4 marks) (c) Margin of safety as a percentage. (3 marks) (d) If Boutique's direct material cost increase by 4%, how many units will the company have to sell to reach its break-even point? (3 marks) 2. Assume that both products are sold (Satin Dress and Silk Dress). Calculate the total number of Satin Dress that needs to be sold to break-even. (5 marks)
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