Viejol Corporation has collected the following information after its first year

Question

Viejol Corporation has collected the following information after its first year of sales. Sales were $2,000,000 on 100,000 units, selling expenses $230,000 (40% variable and 60% fixed), direct materials $490,000, direct labor $611,800, administrative expenses $278,000 (20% variable and 80% fixed), and manufacturing overhead $358,000 (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.)

(1)Contribution margin for current year: $500,000

Contribution margin for projected year : $550,000

(2) Fixed Costs: $467,800

Compute the break-even point in units and sales dollars for the current year.

1) Break-even point in units: _____

2) Break-even point in dollars : ______

Explanation / Answer

Statement showing computations Particulars Current Year Next Year No of units                                100,000.00                       110,000.00 Sales                            2,000,000.00                    2,200,000.00 Variable Costs: Selling Exp = 230000*.40                                  92,000.00                       101,200.00 Direct Materials                                490,000.00                       539,000.00 Direct Labour                                611,800.00                       672,980.00 Admin Exp = 278000*.20                                  55,600.00                          61,160.00 Manu O/H = 358000*.70                                250,600.00                       275,660.00 Total Variable costs                            1,500,000.00                    1,650,000.00 Contribution=Sales-VC                                500,000.00                       550,000.00 Fixed Costs: Selling Exp = 230000*.60                                138,000.00                       138,000.00 Admin Exp = 278000*.8                                222,400.00                       222,400.00 Manu O/H = 358000*.30                                107,400.00                       107,400.00 Total Fixed Costs                                467,800.00                       467,800.00 Income= Cont - FC                                  32,200.00                          82,200.00 Contribution Margin ratio = Cont/Sales 25% 25% BEP in $ = Fixed Costs/PV Ratio or cont Margin ratio                            1,871,200.00                    1,871,200.00 SP per unit = Sales/Unit                                          20.00                                  20.00 BEP in units= BEPin $/SP per unit                                  93,560.00                          93,560.00

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