Cirrus Industrial Products produces two types of power converters ? Scientific and Commercial. In the coming year, Cirrus expects to sell 1,000 Scientific and 3,000 Commercial units. ? The following information was taken from the budgeted income statement for the next year:

In your role as management accountant, you have been asked to conduct some analysis and prepare a report for the Company?s Board of Directors. The members of the Board come from different walks of life ? some understand accounting well, others do not.

Required: Prepare a report for the Board. ? Include the following:

1. Why is breakeven analysis done? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??
2. What is Cirrus? sales mix? Why do we compute it? ? ? ? ? ? ? ? ? ? ? ? ? ? ??
3. How many units of each product must be sold in order for the company as a whole to break even? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
4. Provide the board another means of calculating breakeven using revenue figures, using information in the ?total? column above. ? ? ? ? ? ? ? ? ? ? ? ? ?
5. Some Board members are concerned about a downturn in the economy, and they worry about the risk of a reduction in sales leading to financial losses. ? Describe a measure which is used to assess this risk, and provide the analysis / calculations. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
6. The Director of Marketing has identified an opportunity: If the selling price of Scientific converters were reduced by 15%, the sales volume (in units) would increase by 60%. The Board members would like to know if doing so would be a good idea. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??

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Sales Less: Variable Expenses Contribution Margin Less: Direct Fixed Expenses Product Margin Less: Common Fixed Expenses Operating Income SCIENTIFIC COMMERCIAL $10,000 $6,000 $4,000 $1,500 $2,500 $36,000 $27,000 $9,000 $3,200 $5,800 TOTAL $46,000 $33,000 $13,000 $4,700 $8,300 $3,100 $5,200 Sales Less: Variable Expenses Contribution Margin Less: Direct Fixed Expenses Product Margin Less: Common Fixed Expenses Operating Income SCIENTIFIC COMMERCIAL $10,000 $6,000 $4,000 $1,500 $2,500 $36,000 $27,000 $9,000 $3,200 $5,800 TOTAL $46,000 $33,000 $13,000 $4,700 $8,300 $3,100 $5,200

Answer rating: 100% (QA)

a Soluation Compute brekeeven point in sales BEP in sales fixed cost pv ratio pv ratio Contribution sale 100 particular Scientific Commercial noof uni... View the full answer