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# Cost-Volume-Profit and Budget Analysis

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
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?

#### Solution Summary

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

\$2.19