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# CVP calculations

Sun Inc. sells a single product and has no inventory. The company's 2006 income statement is given below.

Sales (4,000 units) \$800,000
Less flexible (variable) expenses \$200,000
Less capacity-related (fixed) expenses \$300,000

In an attempt to improve performance, Jo, the manager is considering a number of alternative actions. Each situation is to be evaluated separately.

Required:
a. Calculate the break-even point in units and dollars for 2007.

b. Jo believes that a \$100,000 increase in annual advertising expenses will increase sales considerably. How much must sales increase to justify this advertising expenditure, assuming that the benefit lasts only one year?

c. Jo believes that flexible costs can be decreased by 10% per unit. As a result, she wants to reduce the selling price by 2% in anticipation of a 5% increase in sales volume. What are projected profits if these proposals are implemented?

#### Solution Preview

Sun Inc. sells a single product and has no inventory. The company's 2006 income statement is given below.

Sales (4,000 units) \$800,000
Less flexible (variable) expenses \$200,000
Less capacity-related (fixed) expenses \$300,000

In an attempt to improve performance, Jo, the manager is considering a number of alternative actions. Each situation is to be evaluated separately.

Required:
a. Calculate the break-even point in units and dollars for 2007.

Breakeven units = Fixed cost/unit contribution margin
Total contribution margin = ...

#### Solution Summary

The solution explains how to calculate the breakeven point and to determine if changes in costs are beneficial.

\$2.19