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    Cost-Volume-Profit and Budget Analysis

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    A partial income statement of IBN Corporation for Year 0 follows. The company uses just-in-time inventory, so production
    each year equals sales. Each dollar of finished product produced in Year 0 contained $0.50 of direct materials, $0.33333 of
    direct labor, and $0.16667 of overhead costs. During Year 0, fixed overhead costs were $40,000. No changes in production
    methods or credit policies are anticipated for Year 1.
    IBN Corporation
    Partial Income Statement for Year 0

    Sales (100,000 units @ $10) $1,000,000
    Cost of Goods Sold $600,000
    Gross Margin $400,000
    Selling Costs $150,000
    Administrative Costs $100,000 $250,000
    Operating Profits $150,000

    Management has estimated the following changes for Year 1:
    30% increase in number of units sold
    20% increase in unit cost of materials
    15% increase in direct labor cost per unit
    10% increase in variable overhead cost per unit
    5% increase in fixed overhead costs
    8% increase in selling costs due to increased volume
    6% increase in administrative costs due to increased wages

    a. what must the unit sales price be in Year 1 for IBN Corporation to earn a $200,000 operating profit?
    b. What will be the Year 1 operating profit if selling prices are increased as before, but unit sales increase by 10% rather than
    30%? (Selling costs would go up by only 1/3 of the amount projected previously.)
    c. If selling price in Year 1 remains at $10 per unit, how many units must be sold in Year 1 for the operating profit to be $200,000?

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    Solution Summary

    The solution computes unit sale price, operating profit, breakeven point in excel sheet.