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CollegePak Company: Cost Volume Profit Analysis

CollegePak Company produced and sold 60,000 units during the year just ended at an average price of $20 per unit. Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold. Fixed costs amounted to $180,000 for manufacturing and $72,000 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.)

1. Compute CollegePak's break-even point in sales dollars for the year.
2. Compute the number of sales units required to earn a net income of $180,000 during the year.
3. CollegePak's variable manufacturing costs are expected to increase by 10 percent in the coming year. Compute the firm's break-even point in sales dollars for the coming year.
4. If the CollegePak's variable manufacturing costs do increase by 10 percent, compute the selling price that would yield the same contribution-margin ratio in the coming year.

Solution Preview

The answers are also in the attached file:

CollegePak Company produced and sold 60,000 inits during the year just ended at an average price of $20 per unit.  Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold.  Fixed costs amounted to $180,000 for manufacturing and $72,000 for marketing.  There was no year-end work-in-process inventory.  (Ignore income taxes.)

1.  Compute CollegePak's break-even point in sales dollars for the year.

Selling price= $20.00 per unit

Variable Costs:
Manufacturing: $8.00 per unit
Marketing: $4.00 per unit
Total Variable Costs: $12.00 per unit

Fixed Cost:
Manufacturing: $180,000
Marketing: $72,000
Total Fixed Costs: $252,000

Selling Price= $20.00 per unit
Variable cost= $12.00 per unit
Therefore Contribution= $8.00 per unit =$20.-$12.

Variable cost is 60% =12/20 of ...

Solution Summary

This solution calculates break-even point in sales dollars, number of sales units required to earn a net income and selling price that would yield the same contribution-margin ratio in the coming year. The solution is provided in plain text as well as formatted in the attached Excel file.

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