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QUESTION #2 COST VOLUME PROFIT ANALYSIS

The Cosmo Company manufactures a product that sells for $250 per unit. The total variable costs for the products are $150 per unit, and the companys fixed costs are $1,000,000.

Required:

Calculate each of the following:

1. The contribution margin per unit

2. The contribution margin ratio (%)

3. The break even point in units

4. Break-even point in dollars

5. Prepare a Contribution Margin Income Statement for the Cosmo Company at the break even point

Cosmo Company

Contribution Margin Income Statement at Break Even Point

6. If Cosmo Company were to sell 9,999 units, would they earn a profit or sustain a loss?

7. The management of the Cosmo Company wants to earn an annual after tax income of $750,000. The company is subject to an income tax rate of 40%. (Refer to the original information provided: Selling Price $250, Variable Costs $150 and Fixed Costs $1,000,000). Determine the units of product that must be sold in order to earn the target after-tax net income.

8. The sales manager feels that the price will increase to $285 per unit. According to the production manager, the variable costs are expected to increase to $180 per unit, but fixed costs will remain at $1,000,000. Based on these new predictions, calculate the companys new Break-Even Points in units (ignore taxes). Round your answer to the nearest whole unit.

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