S eygandt, Managerial Accounting, 7e MANAGERIAL ACCOUNTING (ACG 2071-101) the fo

Question

S eygandt, Managerial Accounting, 7e MANAGERIAL ACCOUNTING (ACG 2071-101) the following information after its first year of sales. Sales were $2,250,000 on 90,000 units; selling expenses S250,000 (40% variable and 60% fixed); direct matenals $1,131,400; direct $250,0oo; $378,000 (70% v the coming year. It has $270,000 (20% variable and 80% fixed); and manufactur ng overhead . Top management has asked you to do a CVP analysis so that it can make plans for that unit sales will increase by 10% next year.

Explanation / Answer

(b) Break-even point in units = 95,880 units Break-even point in dollars = $ 23,97,000 Workings: Unit selling Price = $ 22,50,000 /        90,000 = $ 25 Unit variable cost = $ 18,00,000 /        90,000 = $ 20 Unit contribution margin = $ 25 - $            20 = $ 5 Contribution margin ratio = $ 5 / $            25 = 0.2 Break-even point in units = Fixed costs / Unit contribution margin $   4,79,400 / $ 5 = 95,880 units Break-even point in dollars = Fixed costs / Contribution margin ratio $   4,79,400 / 0.2 = $ 23,97,000 Calculation of Variable cost Direct materials = $ 11,31,400 Direct labour = $   2,50,000 Manufacturing overhead (3,78,000*0.7) = $   2,64,600 Selling expense (2,50,000*0.4) = $   1,00,000 Administrative expense (2,70,000*0.2) = $       54,000 Total Variable cost = $ 18,00,000 Calculation of Fixed cost Manufacturing overhead (3,78,000*0.3) = $   1,13,400 Selling expense (2,50,000*0.6) = $   1,50,000 Administrative expense (2,70,000*0.8) = $   2,16,000 Total Fixed cost = $   4,79,400

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