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CVP Analysis

Galaxy Disk's projected operating income for 2008 is $200,000, based on a sales volume of 200,000 units. Galaxy sells disks for $16 each. Variable costs consist of the $10 purchase price and a $2 shipping and handling cost. Galaxy's annual fixed costs are $600,000.

1. Calculate Galaxy's breakeven point and margin of safety in units.
2. Calculate the company's operating income for 2008 if there is a 10% increase in projected unit sales.
3. For 2009, management expects that the unit purchase price of the disks will increase by 30%. Calculate the sales revenue Galaxy must generate for 2009 to maintain the current year's operating income if the selling price remains unchanged.

Solution Preview

1. Breakeven units = Fixed/unit contribution margin
Fixed cost = $600,000
Unit contribution margin = selling price - variable cost = 16 - (10+2) = $4
Breakeven units = 600,000/4 = 150,000
Margin of safety = current units sold - breakeven ...

Solution Summary

The solution explains the calculation of breakeven, margin of safety in units, operating income