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Part A - Cost Volume Profit (15 marks) Forecast income statement Sales 5,000,000 Direct material...

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Accounting

Part A - Cost Volume Profit (15 marks)

Forecast income statement

Sales 5,000,000

Direct material cost (1000,000)

Direct labour cost (12,50,000)

Variable factory overhead. (750,000)

Fixed factory overhead (1000,000)

Costs of good sold (4,000,000)

Gross profit 1,000,000

Corporate fixed cost (750,000)

Operating Profit 250,000

The entity above prepared the forecasted income statement presented. The entity expects to sell 250,000 units during the next year.

The entity uses a process costing system, and Chief Financial Officer has been asked to answer the questions below.

There is a need to update the IT system which is not in the amounts above. Sales have over time, been 15% better or 15% worse than forecast for this company.

1. What is the contribution margin ratio and contribution margin per unit?

2. What is break-even sales dollars and units?

3.What is the safety margin of the forecasted sales level versus break-even sales? Does this level of safety raise concerns, why?

4. The entity would prefer to achieve an operating profit of $500,000. What is the level of required sales units and dollars?

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