PART lI Cost- Volume-Profit Analysis below. Show all computations. Circle your a
ID: 2465722 • Letter: P
Question
PART lI Cost- Volume-Profit Analysis below. Show all computations. Circle your answers (15 Points) Place your answers in the spaces provided Kate is conside Is considering going into business producing music books to sell to elementary schools She has an offer from a publication f book. She estimates that she can sell each book for $4.00 irm that will charge her a $5,000 setup fee and $1.50 per A. B. C. D. What is the contribution margin per book? Prepare a CVP income statement. How many books does Kate need to sell in order to break even? Assume t needs to sell to earn a profit of $4,000. that Kate wants to earn a profit of $4,000. Calculate the number of books Kate that Kate estimates that she can sell 3,500 books. What is Kate's margin of safety in number of units and margin of safety rate? PART III: CVP Solution Section A. B. Contribution margin per unit, CVP Income statement C. Number of books to break ever D. Number of books for $4,000 profit E. Margin of safety in units and margin of safety rateExplanation / Answer
a. Contribution margin per book = Selling Price - Variable Price = 4 -1 .50 = $ 2.50per book
b. CVP Income Statement
Selling Price 4.00 Less : Variable Cost 1.50per unit Contribution 2.50per unit Less : Fixed Cost $ 5000 = Income
c. Break Even Point = Fixed Cost / Contribution per Unit = $ 5000 / 2.5 = 2000 books
d. Contribution per unit - Fixed Cost = Profit
2.5x - 5000 = 4000
x = 3600 books
e. Margin of safety = Sales - Break Even Point
= 3500 - 2000 = 1500 books
Margin of Safety Rate :
Margin of Bbreak Even Sales = 2000 / 3500 = 57.14%
Therefore Margin of Safety Rate = 100 - Break Even Sales = 100- 57.14 = 42.86 %
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