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# CVP Analysis

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Body Sculpture Inc, makes three models of high performance weight training benches. Current operating data are summarized here:

MegaMuscle PowerGym Proforce
Selling price per unit \$280 \$400 \$580
Contribution margin per unit 84 154 116
Monthly Sales Volume - Units 6,000 4,000 2,000
Fixed expenses per month Total of \$1,280,000

Required:
A) Calculate the contribution margin ratio each product.
B) Calculate the firm's overall contribution margin ratio
C) Calculate the firm's monthly break- even point in sales dollars
D) Calculate the firm's monthly operating income
E) Management is considering the elimination of the Pro-force model due to its low sales volume and low contribution margin ratio. As a result total fixed expenses can be reduced can be reduced to \$1,080,000 per month. Assuming that this change would not affect the other models, would you recommend the elimination of the Pro-force model? Explain your answer.
F) Assume the same facts as in part (e.) Assume also that the sales volume for the Power-Gym model will increase by 1,000 units per month if the Pro-force model is eliminated. Would you recommend eliminating the Pro-force model? Explain your answer.

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#### Solution Preview

Please refer attached file for better clarity of tables and formulas.

A)Calculate the contribution margin ratio each product.
MegaMuscle PowerGym Proforce
Selling price per unit, P \$280 \$400 \$580
Contribution margin per unit, CM 84 154 116
Contribution margin ratio, CMR=CM/P 0.300 0.385 0.200

B)Calculate the firm's overall contribution margin ratio

MegaMuscle PowerGym Proforce Total Sales
Monthly Sales Volume - Units 6,000 4,000 2,000 12,000
% Share of physical units 50.00% 33.33% 16.67%

Weighted contribution margin ...

#### Solution Summary

Solution calculates weighted CM ratio, break even sales and operating profit in the given case. It also analyzes the effect of eliminating certain product on company profits.

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