Purchase Solution

MediaSol Inc. contribution margin, breakeven, impact profit

Not what you're looking for?

Ask Custom Question

Please complete questions in attachment.

MediaSol Inc. Produces affordable, high quality personal mulitmedia entertainment devices. The company's Video Division manufactures three portable video players - the Stnadard, the Deluxe, and the Pro-that are widely used by the younger generation. Selected information on the portable video players is given below:

Standard Deluxe Pro
Selling price per video player $80 $120 $180
Variable expenses per video player:
Production 44 54 63
Selling (10% of selling price) 8 12 18

All sales are made through the company's own retail outlets. The Video Division has the following fixed costs:

Per Month
Fixed production costs $90,000
Advertising expense 75,000
Administrative salaries 37,500
Total $202,500

Sales, in unites, over the past two months have been as follows:

Standard Deluxe Pro Total
April 1,000 500 2,500 4,000
May 3,750 750 1,500 6,000

Required:
1. Using the contribution approach, prepare an income statement for April and an income statement for May,
2. with the following headings:

Standard Deluxe Pro Total
Amount % Amount % Amount % Amount %
Sales
Etc....

Place the fixed expenses only in the Total column. Do not show percentages for the fixed expenses.

2. On seeing the income statements in (1) above, the president stated, "I can't believe this!
We sold 50% more portable video players in May than in April, yet profits went down. It's obvious that costs are
out of control in that division." What other explanation can you give for the drop in operating income?

3. Compute the Video Division's break-even point in dollar sales for April.

4. Has May's break-even point in dollar sales gone up or down from April's break-even point? Explain without
computing a break-even point for May.

5. Assume that sales of the standard video play increase by $35,000. What would be the effect on operating
income? What would be the effect if Pro video player sales increased by $35,000? Do not prepare income
statements; use the incremental analysis approach in determining your answer.

Attachments
Purchase this Solution
Solution Summary

Your tutorial is attached in excel. Click in cells to see computations. Instructional commentary has been added on the sheets for you.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • CVP Problem

    Fixed cost = no. of units (selling price per unit - variable cost per unit) Breakeven units = Fixed Cost/Contribution Margin per unit Here Fixed Cost = 360,000 Selling Price per unit = 5.50 variable cost per unit = 3.25 Contribution margin per

  • Contribution Margin

    After breakeven, all contribution margin goes to profits The solution explains the impact on profits of contribution margin in excess of breakeven point.

  • CVP calculations

    Breakeven units = Fixed cost/unit contribution margin Total contribution margin = 800,000-200,000=600,000 Unit contribution margin = 600,000/4,000 = $150 Breakeven units = 300,000/150 = 2,000 units Breakeven dollars = Breakeven units X selling price

  • Break Even and Target Income

    Breakeven at $23 sales price Profit=SALES PRICE-COGS Profit (contribution margin) = $23-$18=$5 per unit BREAKEVEN UNITS= (FIXED EXPENSES) / (CONTRIBUTION MARGIN PER UNIT) BREAKEVEN UNITS=$80,000/$5 BREAKEVEN UNITS=16,000 units 3.

  • Cost Volume Profit Analysis for Steve Stiff and Company

    Unit Contribution Margin = Unit Price-Variable Cost= 25-10= $15

    b. Contribution Margin Ratio = Contribution Margin/ Sales=15/25= 0.6

    c. Breakeven Sales in Units = Fixed Costs/ Contribution Margin = 15,000/15= 1000

    d.

  • Breakeven and Target Profit

    This is calculated as Breakeven units = Fixed Costs/Contribution Margin per unit This is because at breakeven units - Fixed Costs = Total Contribution margin (contribution margin per unit X units) Contribution margin per unit = selling price per unit

  • Breakeven Analysis vs. Operating Leverage

    Targeted Profit Analysis - Targeted Profit in Units and Targeted Profit in Sales Dollars. Margin of Safety - Margin of Safety in dollars and Margin of Safety Percentage. How is Breakeven Analysis beneficial to Management and Planning?

  • Cost Behavior and Cost-Volume-Profit Analysis

    Comments are made about how the changes impact the profit outcomes and breakeven levels. A short discussion gives examples of why some products may have higher fixed costs and which product is more vulnerable to volume decreases (and why).

  • CVP Analysis

    Breakeven units are calculated as Breakeven units = Fixed costs/unit contribution margin Fixed cost = $500,000 Unit contribution margin = selling price per unit - variable cost per unit = $20-10 = $10 Breakeven units = 500,000/10 = 50,000 units Breakeven

View More Related Solutions