CVP Analysis
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During its 3rd year of business, Pete's Pasta estimates that 415,000 pastas (385,000 meaty pastas and 30,000 veggie) will be made. Direct material costs per unit are $.74 per meaty pasta and $.62 per veggie pasta. Direct labor costs are $2.51 per meaty pasta and $2.78 per veggie pasta. Monthly fixed selling and administrative costs are $15,300 while monthly fixed manufacturing overhead is $2,851. The variable overhead cost is $.55 per pasta. The sales price for veggie pastas is $5.25 per pasta and the sales price for meaty pastas is $5.00.
A) How will the break even point change if the sales mix changes to 80% meaty pastas and 20% veggie pastas?
B) What would happen to the break even point if the labor costs increased by 10%?
C) What would happen to the break even point if Pete's Pasta increased the sales price of meaty pastas to $5.25 and veggie pastas to $5.50?
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Solution Summary
The solution describes the methodology to find break even point in response to changes in sales mix, increase in labor cost and changes in prices.
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A) How will the break even point change if the sales mix changes to 80% meaty pastas and 20% veggie pastas?
Material Costs for meaty pasta= $0.74
Direct labor cost for meaty pasta=$2.51
Variable overheads=$0.55
Total Variable cost=(0.74+2.51+0.55) =$3.8 per meaty pasta
Price of meaty pasta=$5.00
Contribution margin for meaty pasta=Price-Variable Cost=5-3.8=$1.2
Material Costs for veggie pasta= $0.62
Direct labor cost for veggie pasta=$2.78
Variable overheads=$0.55
Total Variable cost=(0.62+2.78+0.55) =$3.95 per veggie pasta
Price of veggie pasta=$5.25
Contribution margin for veggie pasta=Price-Variable ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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