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P18-5A
Poole Corporation has collected the following information after its first year of sales. Net sales were \$1,600,000 on 100,000 units; selling expense \$240,000 (40% variable and 60% fixed); direct materials \$511,000; direct labor \$285,000; administrative expense \$280,000 (20% variable and 80% fixed); manufacturing overhead \$360,000 (70% variable and 30% fixed). Top management has asked you to do CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

Instructions
(a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year).
(b) Compute the break-even point in units sales dollars for the current year.
(c) The company has a target net income of \$310,000. What is the required sales in dollars for the company to meet its target?
(d) If the company meets target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is it margin of safety ratio?

Solution Summary

The solution the calculation of contribution margin, breakeven and target net income

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