Chapter 5 CVP Analysis
The format of a CVP Income Statement
What is Sales - Variable Costs - Fixed Costs = Net Income?
Fixed Costs = $10,000
Target Net Income = $13,000
Find the Required Sales in Units to meet the Target Net Income
Prices per Unit = $500
Variable Costs per Unit = $210
Find the Break Even Sales
a) 20,000
b)Shoes (20,000 X .35) = 7,000 pairs of shoes
Gloves (20,000 X .55) = 11,000 pairs of gloves
Range-finders (20,000 X .10) = 2,000 range-finders
PERINE COMPANY
Direct Materials Budget
For the Month Ending January 31, 2017
Units to be produced 4,000
Direct materials per unit X 2
Total pounds required for production 8,000
Add: Desired ending inventory (25% X 5,000 X 2) 2,500
Total materials required 10,500
Less: Beginning materials inventory
(4,000 X 2 X 25%) 2,000
Direct materials purchases 8,500
Cost per pound X $6
Total cost of direct materials purchases $51,000
b) $48,750
c) 51.25%
a) Product D: $30 ÷ $10 = 3.0 hours per unit
Product E: $80 ÷ $10 = 8.0 hours per unit
Product F: $35 ÷ $10 = 3.5 hours per unit
b) D = $25
E = $17.50
F = $20
c) Product D
b) $14
c)25%
d) $70
Jan Feb Mar Total
Sales in units 12,000 14,000 13,000 39,000
Plus: desired ending inventory 19,200(1) 17,400(2) 15,400(3) 15,400
Total needs 31,200 31,400 28,400 54,400
Less: beginning inventory 17,600 19,200 17,400 17,600
Required production units 13,600 12,200 11,000 36,800
Jan Feb Mar Total
Production in units 13,600 12,200 11,000
Direct labor hours per unit X 2.00 X 2.00 X 1.50
Total hours needed 27,200 24,400 16,500
Rate per hour X $8.00 X $8.00 X $8.00
Total direct labor $217,600 $195,200 $132,000 $544,800
E5-5
Fixed = $4500
a) $2,587,500
b) $1,990,385 (rounded)
$155
Since the $160 price offered by the Bathtub Division exceeds this minimum price, the offer should probably be accepted. However, given that the division is operating at full capacity, it should give some consideration to the chance that it may anger existing customers if it has to turn away business.