Changes in Break-Even Points with Changes in Unit Prices : Salamanca produces and sells refrigerator magnets to
Question:
- Changes in Break-Even Points with Changes in Unit Prices :Salamanca produces and sells refrigerator magnets to be sold as novelty items by resorts. Last year, Salamanca sold 198,400 units. The income statement for Salamanca, Inc., for last year is as follows:
| Sales | $992,000 |
| Less: Variable expenses | 545,600 |
| Contribution margin | $446,400 |
| Less: Fixed expenses | 180,000 |
| Operating income | $266,400 |
Required:
1.Compute the break-even point in units and in revenues.
| Break-even units | __________ | |
| Break-even revenue | $__________ |
Compute the margin of safety in sales revenue for last year. $__________
2.Suppose that the selling price decreases by 8 percent. Will the break-even point increase or decrease? ( INCREASE OR DECREASE)
Recompute the break-even point in units. Round your answer to the nearest whole unit. ______________units
4.Can you predict whether the break-even point increases or decreases if both the selling price and the unit variable cost decrease?
Recompute the break-even point in units incorporating both of the changes in Requirements 2 and 3. Round your answer to the nearest whole unit. ______________ units
5.Assume that total fixed costs increase by $50,000. (Assume no other changes from the original data.) Will the break-even point increase or decrease?Increase or Decrease
Recompute the break-even point in units. Round your answer to the nearest whole unit. ______________units
2. ABC and CVP Analysis: Multiple Products
Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:
| Rose | Violet | |
| Expected sales (in cases) | 50,000 | 10,000 |
| Selling price per case | $100 | $80 |
| Direct labor hours | 36,000 | 6,000 |
| Machine hours | 10,000 | 3,000 |
| Receiving orders | 50 | 25 |
| Packing orders | 100 | 50 |
| Material cost per case | $50 | $43 |
| Direct labor cost per case | $10 | $7 |
The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours.
| Fixed | Variable | ||
| Direct labor benefits | $ | $200,000 | |
| Machine costs | 200,000* | 262,000 | |
| Receiving department | 225,000 | ||
| Packing department | 125,000 | ||
| Total costs | $550,000 | $462,000 |
*All depreciation
Required:
1.Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. In your computations, round variable unit cost to the nearest cent and round the number of break-even packages to the nearest whole number.
| Break-even cases of Rose | __________ cases |
| Break-even cases of Violet | __________ cases |
2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even. In your computations, round all computed amounts to the nearest cent and round the number of break-even packages to the nearest whole number.
| Break-even cases of Rose | __________. cases |
| Break-even cases of Violet | __________. cases |
Expert Answer:
Lets calculate the breakeven points for Salamanca Inc 1 BreakEven Analysis Conventional Approach Breakeven units frac180000Contribution margin per uni... View the full answer
