Lorge Corporation has collected the following information afterits first year of sales. Sales were $2,875,000 on 115,000 units;selling expenses $250,000 (40% variable and 60% fixed); directmaterials $1,655,900; direct labor $250,000; administrativeexpenses $270,000 (20% variable and 80% fixed); and manufacturingoverhead $343,000 (70% variable and 30% fixed). Top management hasasked you to do a CVP analysis so that it can make plans for thecoming year. It has projected that unit sales will increase by 10%next year.
(a)
Compute (1) the contribution margin for the current year and theprojected year, and (2) the fixed costs for the current year.(Assume that fixed costs will remain the same in the projectedyear.)
| (1) | | Contribution margin for current year | | $ |
| | Contribution margin for projected year | | $ |
| (2) | | Fixed costs for current year | | $ |
Compute the break-even point in units and sales dollars for thefirst year.
Break-even point units
Break-even point $
The company has a target net income of $ 318,060 . What is therequired 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 whatpercentage could its sales fall before it is operating at a loss?That is, what is its margin of safety ratio?
Margin of safety ratio %
The company is considering a purchase of equipment that wouldreduce its direct labor costs by $ 106,704 and would change itsmanufacturing overhead costs to 30% variable and 70% fixed (assumetotal manufacturing overhead cost is $ 369,360 , as above). It isalso considering switching to a pure commission basis for its salesstaff. This would change selling expenses to 90% variable and 10%fixed (assume total selling expense is $ 246,240 , as above).Compute (1) the contribution margin and (2) the contribution marginratio, and recompute (3) the break-even point in sales dollars.(Round contribution margin ratio to 0 decimal places, e.g. 25% andall other answers to 0 decimal places, e.g. 2,520.)
1. Contribution margin
2. Contribution margin ratio %
3. Break-even point
