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    Vince Drum Company, Jetson Company, Letter Co. CVP problems

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    Problem facts:

    Problem 18-1A
    The following costs result from the production and sale of 4,000 drum sets manufactured by
    Vince Drum Company for the year ended December 31,2011. The drum sets sell for $250 each. The company has a 25% income tax rate.

    Variable production costs
    Plastic for casting .......................$68,000
    Wages of assembly workers..............328,000
    Drum Stands......................104,000
    Variable selling costs
    Sales commission....................60,000
    Fixed manufactoring costs
    Taxes on factory.....................10,000
    Factory maintance....................20,000
    Factory machinery depreciation.....................80,000
    Fixed selling and administractive costs
    Lease of equipment for sales staff.....................20,000
    Accounting staff salaries....................70,000
    Administrative management salaries....................150,000
    Required
    1. Prepare a contribution margin income statement for the company.
    2. Compute its contribution magin per unit and its contribution margin ration.

    Analysis component
    3. Interpret the contribution margin and contribution margin ration from part 2
    -----------------

    Jetson Co. sold 20,000 units of its only product and incurred a $50,000 loss?(ignoring taxes)
    for the current year as shown here. During a planning session for year 2012
    activities, the production manager notes that variable costs can be reduced 50% by installing a machine that
    automates several operations. To obtain these savings, the company must increase its annual?
    fixed costs by $150,000. The maximum output capacity of the company is 40,000 units per year.

    JETSON COMPANY
    Contribution Margin Income Statement
    For Year Ended December 31, 2011

    Sales $750,000
    Variable costs 600,000
    Contribution margin 150,000
    Fixed costs 200,000
    Net Loss $(50,000)

    Required
    1.Compute the break-even point in dollars sales for year 2011.
    2.Compute the predicted break-even point in dollar sales for year 2012 assuming the machine is installed and there is no change in the unit sales price.
    3.Prepare a forecasted contribution margin income statement for 2012 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due.
    4.Compute the sales level required in both dollars and units to earn $140,000 of after-tax income in 2012 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.
    5.Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%
    ------------------------------
    Letter Co. produces and sells two products, T and O.? It manufactures these products in separate factories and markets them through different channels
    They have no shared costs. This year, the company sold 50,000 units of each product. Sales and costs for each product follow.

    Sales
    $800,000
    ? $800,000
    Variable Costs
    ?560,000
    ?100,000
    Contribution margin
    240,000
    700,000
    Fixed Costs
    100,000
    560,000
    Income before taxes
    140,000
    140,000
    Income taxes (32% rate)
    44,800
    44,800
    Net Income
    $95,200
    $95,200

    Required

    1. ? Compute the break-even point in dollar sales for each product.
    2. ? Assume that the company expects sales of each product to decline to 33,000 units next year with no change in unit sales price.
    Prepare forecasted financial results for next year following the format of the contribution margin income statement as just shown with columns.?
    for each of the two products (assume a 32% tax rate). Also, assume that any loss before taxes yields a 32% tax savings.?
    3. ? Assume that the company expects sales of each product to increase to 64,000 units next year with no change in unit sales price. Prepare forecasted.?
    financial results for next year following the format of the contribution margin income statement shown with columns for each of the two products (assume a 32% income tax rate).

    Analysis component
    4. ? If sales greatly decrease, which product would experience a greater loss? Explain
    5. ? Describe some factors that might have created the different cost structures for these two products.
    -----------------

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    Problem facts:

    Problem 18-1A
    The following costs result from the production and sale of 4,000 drum sets manufactured by
    Vince Drum Company for the year ended December 31,2011. The drum sets sell for $250 each. The company has a 25% income tax rate.

    Variable production costs
    Plastic for casting .......................$68,000
    Wages of assembly workers..............328,000
    Drum Stands......................104,000
    Variable selling costs
    Sales commission....................60,000
    Fixed manufactoring costs
    Taxes on factory.....................10,000
    Factory maintance....................20,000
    Factory machinery depreciation.....................80,000
    Fixed selling and administractive costs
    Lease of equipment for sales staff.....................20,000
    Accounting staff salaries....................70,000
    Administrative management salaries....................150,000
    Required
    1. Prepare a contribution margin income statement for the company.
    2. Compute its contribution magin per unit and its contribution margin ration.

    Analysis component
    3. Interpret the contribution margin and contribution margin ration ...

    Solution Summary

    Your tutorial including coaching notes are attached in Excel. Three ideas about why a product might have high fixed costs are suggested. Each problem is a separate tab. Click in cells to see calculations.

    $2.19

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