CVP Analysis and Marginal Analysis Paper 3

1

What is the breakeven point in units for a product that sells for $10 if fixed costs are $4,000 and variable costs are 20% of sales?






2

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:
Direct labor $180
Direct materials 240
Factory overhead 105
Variable production costs 252
Marketing costs 75
Total variable costs $600
Madengrad’s income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years. If Madengrad Company achieves a sales and production volume of 8,000 units, the annual before-tax income (loss) will be






3

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:
Direct labor $180
Direct materials 240
Factory overhead 105
Variable production costs 252
Marketing costs 75
Total variable costs $600
Madengrad’s income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years. The annual sales volume required for Madengrad Company to break even is






4

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:
Direct labor $180
Direct materials 240
Factory overhead 105
Variable production costs 252
Marketing costs 75
Total variable costs $600
Madengrad’s income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years. Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor, and a reduction in unit material costs of 25%, with no change in selling price. After incorporating these changes, Madengrad Company’s contribution margin would be






5

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:
Direct labor $180
Direct materials 240
Factory overhead 105
Variable production costs 252
Marketing costs 75
Total variable costs $600
Madengrad’s income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years. Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor, and a reduction in unit material costs of 25%, with no change in selling price. Madengrad Company’s breakeven point would increase (decrease) (rounded to the nearest whole unit) by






6

A company has sales of $500,000, variable costs of $300,000, and operating income of $150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost per unit unchanged, what would be the new breakeven point in sales dollars?






7

Barnes Corporation manufactures skateboards and is in the process of preparing next year’s budget. The pro forma income statement for the current year is presented below.
Sales $1,500,000
Cost of sales:
Direct materials $250,000
Direct labor 150,000
Variable overhead 75,000
Fixed overhead 100,000 (575,000)
Gross profit $925,000
Selling and G&A:
Variable $200,000
Fixed 250,000 (450,000)
Operating income $475,000
The breakeven point (rounded to the nearest dollar) for Barnes Corporation for the current year is






8

Barnes Corporation manufactures skateboards and is in the process of preparing next year’s budget. The pro forma income statement for the current year is presented below.
Sales $1,500,000
Cost of sales:
Direct materials $250,000
Direct labor 150,000
Variable overhead 75,000
Fixed overhead 100,000 (575,000)
Gross profit $925,000
Selling and G&A:
Variable $200,000
Fixed 250,000 (450,000)
Operating income $475,000
For the coming year, the management of Barnes Corporation anticipates a 10% increase in sales, a 12% increase in variable costs, and a $45,000 increase in fixed expenses. The breakeven point for next year will be






9

Romashka, Inc., plans to introduce a new product. The marketing manager forecasts a unit selling price of $500. The variable cost per unit is estimated to be $100. In addition, there is a total of $110,000 fixed indirect manufacturing costs, and $150,000 in fixed operating costs associated with these units. What quantity will the company have to sell to break even?






10

A company makes a product that sells for $30. During the coming year, fixed costs are expected to be $180,000, and variable costs are estimated at $26 per unit. How many units must the company sell to break even?






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