E7-37A Comprehensive CVP analysis (Learning Objectives 1, 2, 3,4, & 5) Marcus Al
ID: 2567814 • Letter: E
Question
E7-37A Comprehensive CVP analysis (Learning Objectives 1, 2, 3,4, & 5) Marcus Allen is evaluating a business opportunity to sell premium car wax at vintage car shows. The wax is sold in 64-ounce tubs. Marcus can buy the premium wax at a wholesale cost of $29 per tub. He plans to sell the premium wax for $84 per tub. He estimates fixed costs such as travel costs, booth rental cost, and lodging to be $880 per car show Requirements 1. Determine the number of tubs Marcus must sell per show to break even. 2. Assume Marcus wants to earn a profit of $1,320 per show. a. Determine the sales volume in units necessary to earn the desired profit. b. Determine the sales volume in dollars necessary to earn the desired profit. Using the contribution margin format, prepare an income statement (condensed version) to confirm your answers to parts a and b. Determine the margin of safety between the sales volume at the breakeven point and the sales volume required to earn the desired profit. Determine the margin of safety in both sales dollars, units, and as a percentage. 3.Explanation / Answer
1)no of tubs for breakeven= Fixed costs/(Sales-variable costs)
=880/(84-29)=16
2a)Profit= sales-variable -fixed cots
1320=84x-29x-880
X=40 units
b)Sales volume in dollars=40*84=3360
2c)
Sales=3360
variable costs=1160
Contribution margin=2200
Fixed costs=880
Net income=1320
3)Margin of safety=Actual sales-Breakeven sales
=(3360-(16*84)
=2016 dollars
In units=40-16=24 units
Margin of safety in units(%)=Margin of safety in units/Expected sales in units
=24/40
=60%
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