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Question $2$: CVP

Suds Soap Co$.$ produces two types of artisanal soap. One is Citrus Burst and the other is

Lavender Fields.

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The Citrus Burst soap is sold for $$6$ and has variable costs of $$1\mathrm{.}50.$

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The Lavender Fields soap sells for $$10$ and has variable costs of $$3.$

Suds Soap Co$.$ sells one package of Citrus Burst for every three packages of Lavender Fields

sold. Fixed costs equal $$89,250.$ Luminaire plans on selling a total of $25,000$ packages of soap.

The budgeted segmented income statement is below.

Budgeted Income Statement

Suds Soap Co$.$

Citrus Burst Lavender Fields Total

Units $6,25018,75025,000$

Revenue $$37,500$ $$187,500$ $$225,000$

Variable Costs $$9,375$ $$56,250$ $$65,625$

Contribution margin $$28,125$ $$131,250$ $$159,375$

Fixed costs $$89,250$

Net Operating

Income $$70,125$

A$.$ What is the breakeven point in units for each type of lamp at the current

sales mix?

B$.$ What is the budgeted operating leverage $($use the version that is the

inverse of margin of safety percentage$)?$ By how much will profit increase if

revenue increases by $30\%?$

C$.$ What is the budgeted margin of safety in total sales dollars?

D$.$ Suds Soap Co$.$ is considering buying new production equipment. The

new equipment will increase fixed cost by $$18,050$ per year and will decrease the

unit variable cost of the Citrus Blend soap by $$0\mathrm{.}50$ and the Lavender Field soap

by $$1.$ Assuming the same sales mix, how many packages of each type of soap

would Suds Soap Co$.$ need to sell to break even?

E$.$ Assuming the same sales mix, at what total sales level would Suds Soap

Co$.$ be indifferent between using the old equipment and buying the new

production equipment? Given the budgeted sales of $25,000$ units, should Suds

Soap Co$.$ buy the new production equipment?

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