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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?

Solution Preview

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
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