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CVP question

You have been given a proxy income statement for Bruce Wayne Corporation for the fiscal year 2003. It is summarized below:

Bruce Wayne Corporation
Income statement
For the Year Ended November 31st, 2003

Revenue 650000
Cost of Goods Sold
Labour 75000
Material 50000
Gross Profit 525000
Packaging Labour 67000
Electricity 14000
Amortization 32000
Rent 15000
Shipping 160000 288000
Net Income 237000

Some key data has also been provided to you by management, all of which is useful information to them: however, only some is relevant to you.

Current number of unit produced: 12,000
Number of Employees on Staff: 521
Original cost of Smelting Machinery: $85,000
Number of Shares Outstanding: 125,000
Trading Price per Share: $12

I. Expenses: Identify all the expenses above as being either Fixed or Variable. For expenses labelled Shipping, Amortization and Electricity, explain why you chose either fixed or variable.

II. Contribution Margin: Using your cost behaviour breakdown, calculate the Contribution Margin for each unit produced. (Variable cost calculations and correct result) (Correct math calculation to arrive at correct C.M. margin)

III. What would be the number of units necessary to produce for a breakeven scenario? (correct identifying items to consider) (Correct math calculation to arrive at correct breakeven)

IV. Management has recently discovered that they are now able to lower their labour costs from 67,000 to 55,000 within the year with all other costs remaining the same. What is the Contribution Margin now? (Variable cost calculations and correct result) (Correct math calculation to arrive at correct CM result)

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Solution Summary

The solution explains how to calculate expenses, contribution margin, breakeven and new contribution margin