Based upon the information provided can you provide an explaination how a CVP analysis can assist management with short-term economic planning. Support your response with examples from your CVP analysis.

Determine whether the company is breaking even. What are the CVP analysis implications on planning?

 

 

Requirement 1
	Units	Price	Totals
Sales	60,000	$12.50	$750,000
Variable Costs	60,000	$6.00	$360,000
Fixed Costs			$295,525.00
Net Income			$94,475.00
Requirement 2
Contribution Margin per Unit in Dollars = Selling Price - Variable Costs
Selling Price		Variable Costs	Contribution Margin per Unit
$12.50		$6.00	$6.50
Contribution Margin Ratio = Contribution Margin/Selling Price
Contribution Margin		Selling Price	Contribution Margin Ratio
$6.50		$12.50	52%
Requirement 3
Break-Even Point = Fixed Costs / Contribution Margin
Fixed Costs		Contribution Margin	Break-Even Point in Units (Rounded)
$295,525		$6.50	45,465
Break-Even Point in Units X Selling Price per Unit = Break-Even Point Sales
Break-Even Point in Units		Selling Price per Unit	Break-Even Point in Sales (Rounded)
45,465		$12.50	$568,317
Requirement 4A
Margin of Safety in Units = Current Unit Sales - Break-Even Point in Unit Sales
Current Unit Sales		Break-Even Point in Sales	Margin of Safety in Units
60,000		45,465	14,535
Requirement 4B
Margin of Safety in Dollars =  Current Sales in Dollars -  Break-Even Point Sales in Dollars
Current Sales in Dollars		Break-Even Point in Dollars	Margin of Safety in Dollars
$750,000		$568,317	$181,683
Requirement 4C
Margin of Safety as a Percentage = Margin of Sales in Units / Current Unit Sales
Margin of Safety in Units		Current Unit Sales	Margin of Safety Percentage
14,535		60,000	24%
Requirement 5
Degree of Operating Leverage = Contribution Margin / Operating Income
Contribution Margin		Operating Income	Operating Leverage
$390,000.00		$94,475.00	4.13
Requirement 6
	Units	$ Per Unit	Totals
Sales	72,000	$12.50	$900,000
Variable Costs	72,000	$6.00	$432,000
Fixed Costs			$295,525.00
Net Income			$172,475.00
Operating Leverage		Times % Increase	Increase would be XX%
4.128%		20	82.56%
Prior Income	$94,475.00	From Part 1
Increase	$78,000.00	Prior Income  X   XX% Above
Total	$172,475.00
Requirement 7
Targeted Income = (Fixed Costs + Target Income) / Contribution Margin
Fixed Costs + Target Income		Divided by Contribution Margin	# of Units (Rounded)
Fixed Costs	$295,525
Target Income	$120,000
Total	$415,525	$6.50	63,927
		# of Units Above X $ Per Unit
Proof	Revenue	63927  X $12.50	$799,087
	Variable Costs	63927  X  $6.00	$383,562
	Contribution Margin		$415,525
	Fixed Costs		$295,525
	Net Income		$120,000
Requirement 8
Sales Mix
	Current	Specialty	Total
Expected Sales Units	60,000	5,000	65,000
Revenue = Sales X Price	$750,000	$55,000	$805,000
Variable Costs  X Units	$360,000	$31,000	$391,000
Contribution Margin	$390,000	$24,000	$414,000
Fixed Costs	$295,525	$15,000	$310,525
Operating Income	$94,475.00	$9,000	$103,475
Prior Net Income From Requirement 1			$94,475.00
Additional Operating Income	(Operating Income Above Less Prior Income)		$9,000.00
Decision With Explanation	Based on the above calculations, it makes sense to provide the touring business with the additional 5,000 umbrellas. Even though there are added costs. Hampsire will still gain an additional 39000 in operation income by selling the additional 5,000 umbrellas.

Answer rating: 100% (QA)

The CostVolumeProfit CVP analysis helps management with shortterm economic planning by providing insights into how changes in sales volume costs and p... View the full answer