Lorge Corporation has collected the following information after its first year o

Question

Lorge Corporation has collected the following information after its first year of sales. Sales were $ 1,500,000 on 100,000 units; selling expenses $ 250,000 (40% variable and 60% fixed); direct materials $ 511,000 ; direct labor $ 290,000 ; administrative expenses $ 270,000 (20% variable and 80% fixed); 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.

Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.)

Contribution margin for projected year $_____________

Fixed costs for current year $_____________

Compute the break-even point in units and sales dollars for the first year. (Round contribution margin ratio to 2 decimal places e.g. 0.15 and final answers to 0 decimal places, e.g. 2,510.)
Break-even point ____________ units

Break-even point $________________

The company has a target net income of $ 200,000 . What is the required sales in dollars for the company to meet its target?

Sales dollars required for target net income $______________

If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio? (Round answer to 1 decimal place, e.g. 10.5%.)

Margin of safey ratio ________________%

Contribution margin $____________

Contribution margin ratio__________________%

break-even point $____________   

Explanation / Answer

Current Year Next Year No of Units 100000 110000 Sales $1,500,000 Sales/Unit $15 Sales Expenses $250,000 Fixed $150,000 Variable $100,000 V Cost/Unit $1 D Material Variable $511,000 D Laboour Variable $290,000 V Cost/Unit-Material $5 V Cost/Unit- Labour $3 Admin Expenses $270,000 Fixed $216,000 Variable $54,000 V Cost/Unit $1 Mfg OH $350,000 Fixed $105,000 Variable $245,000 V Cost/Unit $2 Contribution Margin/Year $300,000 $330,000 Contribution Margin/Unit $3 Fixed Cost for Year $471,000 BEP Fixed Cost/Contribution per unit BEP(Units) 157000 BEP(Rs) $2,355,000 When Target income of $ 20000, Units to be sold Fixed Cost+ Income/Contribution per unit No of Units to Sold 223667 Sales required $3,355,000 Margin of safety Sales- Breakeven sales $1,000,000 Margin of safety% 42.46284501 After Recommendatory changes Per Unit No of Units 100000 Sales $1,500,000 $15 Labour cost $186,000 $1.86 Mfg OH 30% Variable $105,000 $1.05 70% fixed $245,000 Sales expenses 90% Variable 225000 $2.25 10% Fixed 25000 Contribution margin $984,000 $9.84 Contribution margin Ratio 66% BEP(Units) Fixed cost/contribution per unit $27,439 BEP($) 411585.3659

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