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3 years ago

Victoria Company reports the following operating results for the month of April.

Business

1 answer:

forsale [732]3 years ago

5 0

Answer:

Victoria Company

1. No Changes:

Break-even point in units = 7,398

Break-even point in dollars = $369,900

Margin of safety = $80,100

2. With changes in sales price and costs:

Break-even point in units = Fixed expense/Contribution margin per unit

= 8,220

Break-even point in dollars = Fixed expense/Contribution ratio

= $390,437

Margin of safety in dollars

= $122,563

Explanation:

a) Data and Calculations:

VICTORIA COMPANY

CVP Income Statement

For the Month Ended April 30, 2020

Total Per Unit

Sales (9,000 units) $450,000 $50

Variable costs 225,000 25.00

Contribution margin 225,000 $25.00

Fixed expenses 184,950

Net income $40,050

Break-even point in units = $184,950/$25 = 7,398

Break-even point in dollars = $184,950/0.5 = $369,900

Margin of safety = $450,000 - $369,900 = $80,100

Management's decision to reduce selling price by 5%

New selling price = $47.50 ($50 * 95%)

Unit sales = 10,800 (9,000 * 1.2)

Total Per Unit

Sales (10,800 units) $513,000 $47.50

Variable costs 270,000 25.00

Contribution margin 243,000 $22.50

Fixed expenses 184,950

Net income $58,050

Break-even point in units = Fixed expense/Contribution margin per unit

= $184,950/$22.50

= 8,220

Contribution ratio = $22.50/$47.50 = 0.4737

Break-even point in dollars = Fixed expense/Contribution ratio

= $184,950/0.4737

= $390,437

Margin of safety in dollars = Budgeted Sales - Break-even Sales

= $513,000 - $390,437

= $122,563

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3 years ago

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3 years ago

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Answer:

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