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CVP ananysis for Athletico Inc

Athletico, Inc. manufactures warm-up suits. The company's projected income for the coming year, based on sales of 160,000 units, is as follows:
Sales $8,000,000
Operating Expanses
Variable Expanses $2,000,000
Fixed Expanses $3000,000
Total Expanses $5,000,000
Net Income $3,000,000

Required:
In completing the following requirements, ignore income taxes.
1.Prepare a CVP graph for Athletico, Inc. for the coming year.
2.Calculate the firm's break-even point for the year in sales dollars.
3.What is the company's margin of safety for the year?
4.Compute Athletico's operating leverage factor, based on the budgeted sales volume for the year.
5.Compute Athletico's required sales in dollars in order to earn income of $4,500,000 in the coming year.
6.Describe the firm's cost structure. Calculate the percentage relationships between variable and fixed expenses and sales revenue.

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Solution:

1.Prepare a CVP graph for Athletico, Inc. for the coming year.
Average Sale Price per unit (P) = 8,000,000/160,000 =$50
Average variable cost per unit (V) = 2,000,000/160,000=$12.5

Costs in dollars
Sales (Units) 0 40000 60000 80000 100000 120000 140000 160000
Fixed Costs 3000000 3000000 3000000 3000000 3000000 3000000 3000000 3000000
Variable Cost (V*Sales)- 500000 750000 1000000 1250000 1500000 1750000 ...

Solution Summary

Solution describes the steps for calculating break even sales, margin of safety, operating leverage factor for Athletico Inc.

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