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 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.
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 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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