uule 15 I Cost-Volume-Profit Analysis and Planning WIGGINS PROCESSING COMPANY Co

Question

uule 15 I Cost-Volume-Profit Analysis and Planning WIGGINS PROCESSING COMPANY Contribution Income Statement For the Year 2012 Sales. . .. Variable costs $1,000,000 Selling and administrative. Contribution margin Fixed costs (620,000) 380,000 Manufacturing overhead. Selling and administrative. .. 205,000 ....80,000 (285,000) 95,000 (34,200) $60,800 After-tax profit Required a. Determine the annual break-even point in sales dollars. b. Determine the annual margin of safety in sales dollars. c What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $57,000? required to provide an after-tax net income of $200,000? will provide the desired after-tax income. d. With the current cost structure, including fixed costs of $285,000, what dollar sales volume is e. Prepare an abbreviated contribution income statement to verify that the solution to requirement (d)

Explanation / Answer

For Break even, contribution margin should be enough to cover fixed cost. Hence contribution margin should be 285000

b. Margin of Safety (MoS)

For Break even, contribution margin should be enough to cover fixed cost. Hence contribution margin should be 285000

a c (increase Fixed cost by 57000) Fixed Cost 285000 342000 Contribution for Break even 285000 342000 Contribution Margin Ratio 38 38 Sales for Break even (contribution/ratio) 750000 900000

b. Margin of Safety (MoS)

Mos means total number of sales dollars that can be lost before the company losses money, hence: Margin of Safety = Actual/Budget Sale-Break even sale therefor MOS 1000000-750000 250000 Margin of Safety Ratio MoS/Actual sale*100 250000/1000000*100 25

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