Problem 6-2A Lorge Corporation has collected the following information after its

Question

Problem 6-2A

Lorge Corporation has collected the following information after its first year of sales. Sales were $2,500,000 on 100,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $1,351,000; direct labor $250,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

Problem 6-2A

Lorge Corporation has collected the following information after its first year of sales. Sales were $2,500,000 on 100,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $1,351,000; direct labor $250,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

Explanation / Answer

Year - 1

Explanation

Question - 2

Break even point in Units and dollars for first year ( current year)

BEP in Units = Fixed cost / Contribution per Unit = 471000 / 5 = 94200 Units

BEP in Dollars = 94200 * 25 = 2355000

Question - 3

Sales required = [ ( Fixed cost + desired profit ) / CM per Unit ] * Selling price

= [ (471,000 + 160000) / 5 ] * 25 = 3,155,000

Question - 4

Margin of safety = Net Income / CM per Unit * selling price = 160000 / 5 * 25 = 800,000

Margin of safety ratio = Margin of safety / Sales * 100 = 800,000 / 3,155,000 * 100 = 25.36%

PART - 2

(3) Breake even point = Fixed cost / CM ratio = 486000 / 0.25 = $ 1,944,000

(1) Contribution margin current Year 500000         Contribution margin for projected Year 550000 (2) Fixed cost for current Year 471000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.