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# CVP in a Multi-Product Environment

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The following is budgeted information for Connor Corporation:

Product XYZ Product ABC
Annual production & sales 25,000 15,000
Projected selling price \$70 \$90

Variable Direct Production Cost Information
Materials (per unit) \$12 \$18
Direct Labor (per unit) \$10 \$16

- Manufacturing overhead costs (a mixed cost) are budgeted to be \$430,000 at the production and sales listed above. The variable component is \$4 per unit (same for each product).
- Selling & administrative costs (a mixed cost) are budgeted to be \$350,000 at the production and sales listed above. The fixed component is \$150,000, and each product uses the same amount of variable selling and administrative costs per unit.

A. Assuming the budgeted sales mix remains intact, how many units of each product does Connor need to sell in order to break-even?

B. Assuming the budgeted sales mix remains intact, how many units of each product does Connor need to sell in order to earn an operating income of \$210,000?

#### Solution Summary

This solution illustrates how to compute the break-even number of units that need to be sold of each product and the number of units that need to be sold of each product to earn a target profit when the company sells multiple products.

\$2.19

## Mgmt 201: nature of costs, target income, CVP, break-even, contribution margin ratio

1. A cost that changes in proportion to changes in volume of activity is a(n):

A. Differential cost.
B. Fixed cost.
C. Incremental cost.
D. Variable cost.
E. Product cost.

2. A target income refers to:

A. Income at the break-even point.
B. Income from the most recent period.
C. Income planned for a future period.
D. Income only in a multiproduct environment.
E. Income at the minimum contribution margin.

3. The excess of expected sales over the sales level at the break-even point is known as the:

A. Sales turnover.
B. Profit margin.
C. Contribution margin.
D. Relevant range.
E. Margin of safety.

4. In cost-volume-profit analysis, the unit contribution margin is:

A. Sales price per unit less cost of goods sold per unit.
B. Sales price per unit less unit fixed cost per unit .
C. Sales price per unit less total variable cost per unit .
D. Sales price per unit less unit total cost per unit.
E. The same as the contribution margin ratio.

The following information describes a product expected to be produced and sold by Hadley Company:

Required:

(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of \$120,000?

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