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# Cost-Volume-Profit analysis

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Need to show the work for Part C and Part D. The work for Part A, Part B, and some of Part C have been completed. I am having trouble with figuring how to complete Part A and B.

PROBLEM
Sure Corporation has collected the following information after its first year of sales.
Net sales were \$1,600,000 on 100,000 units; selling expenses \$240,000 (40% variable and 60% fixed);
direct materials \$511,000; direct labor \$285,000; administrative expenses \$280,000 (20% variable and 80% fixed);
manufacturing overhead \$360,000 (70% variable and 30% fixed). Top management has asked you to do a 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 Projected for next year
current year (assume that fixed costs will remain the same in the projected year). Current year
Current Projected 1.1
Net Sales 1,600,000 1760000 Sales (100,000 units) 1,600,000 Sales 1,760,000
Variable Cost (VC) (1,600,000 x 10%)
Direct Material 511,000 562,100
Direct labor 285,000 313,500 Variable costs
Selling variable 96,000 105,600 Direct material 511,000 Direct material 562,100
Admin Variable 56,000 61,600 (511,000 x 10%)
Total VC 1,200,000 1,320,000 Direct labor 285,000 Direct labor 313,500
Contribution 400,000 440,000 (285,000 x 10%)

Fixed Cost Selling expense variable 96,000 Selling expense variable
Selling Fixed 144000 (240,000 x 40%) (96,000 x 10%) + 96,000 =
Admin Fixed 224000 9,600 + 96,000 = 105,600
Manu fixed 108000
(280,000 x 20%) (56,000 x 10%) + 56,000 =
5,600 + 56,000 = 61,600
B) compute the break-even point in units and sales dollars for the current year
VC per unit 12 (360,000 x 70%) (252,000 x 10%) + 252,000 =
Contribution per unit 4 25,200 + 252,000 = 277,200

Breakeven (units) 119,000 Total variable cost 1,200,000 Total variable cost
Breakeven (dollar sales) 1,904,000 (1,200,000 x 10%) + 1,200,000 =
120,000 + 1,200,000 = 1,320,000

C) the company has a target net income of \$310,000. What is the required sales in dollar's for the company to Contribution 400,000 Contribution
meet its target? (Sales - total variable cost) = (400,000 x 10%) + 400,000 =
(1,600,000 - 1,200,000) = 40,000 + 400,000 = or 1,760,000 - 1,320,000 =
Required Contribution 786,000 400,000 440,000
Required units for Net Income 196,500
Required Sales in dollar 3,458,400

D) If the company meets its target net income number, by what percentage could its sales fall before it is operating at
a loss? That is, what is its margin of safety ratio?
Fixed Cost
Breakeven units for projected year 119,000 Selling expense fixed 144,000
Breakeven \$ sales for projected year 2,094,400 (240,000 x 60%) 10%

Margin of Safety Ratio 0.65 Administrative expense fixed 224,000
(280,000 x 80%)

(360,000 x 30%)

Part B Sales per unit 16
(1,600,000 / 100,000) =

Variable cost per unit 12
(1,200,000 / 100,000) =

Contribution per unit 4
(400,000 / 100,000) =

Break-even (units) 119,000
(144,000 + 224,000 + 108,000) / 4 =
476,000 / 4 = 119,000

Break-even (dollars) 1,904,000
(contribution margin ratio = contribution per unit / sales per unit)
(contribution margin ratio = 4 / 16 = 0.25
(contribution margin ratio = 25%); then fixed costs / contribution margin ratio = break-even point in dollars
(476,000 / 25%) = 1,904,000

Part C Required contribution 786,000
(total fixed cost + target net income) =
(476,000 + 310,000 = 786,000)

Required units per net income 196,500
(required contribution / contribution per unit) =
(786,000 / 4 = 196,500)

Required sales in dollars 3,458,400

Part D