The focus of this assignment is cost-volume profit (CVP) analysis. The CVP analy
ID: 2329964 • Letter: T
Question
The focus of this assignment is cost-volume profit (CVP) analysis. The CVP analysis is a forecasting tool to determine how many units of a product must be sold to breakeven or reach a specified operating target. Other conclusion about changing sales prices or costs can be made by altering the components of the analysis In this assignment, you will use the background information presented below to prepare a corporate sales budget and recommend an appropriate type of budget analysis, and calculate cash collections, breakeven point, and accounts receivable Greenfield Corporation uses a calendar year end Recent and Forecasted Widget Sales in Units o October (actual)-30,000 o November (actual)-34,000. o December (actual)-38,000 o January-40,000 o February-55,000 oMarch-60,000 The price per unit is S10 For this ansignment, complete the following 1 Prepare the sales budget for the first quarter, You may use the Sales Budget Template provided below 2 Based on the sales price, calculate the breakeven point for the quarter in dollars and units if the total fxed costs for the quarter are S400,000 and variable costs are 20 percent of sales 3. Determine the level of sales (in dolars) needed to reach an operating profit (or income) target of $575,000 by the end of the first quarter 4 Using the information provided, prepare a memo to executive sales management to explain the budget and sales projections. The memo should clearly explain the concept of cost-volume-profit (CVP) analysis and how the analysis can be used to plan and control cost including how variable and fixed cost mpact the CVP analysis SALES BUDGET SALES February March Quarter Budgeted Sales in Units Selling Price Per Unit Total Sales SCHEDULE OF EXPECTED CASH COLLECTIONS: November December January February March Total Cash Collections ACCOUNTS RECEIVABLE BALANCEExplanation / Answer
Answer 1 SALES BUDGET January February March Quarter Budgeted sales in units 40000 55000 60000 155000 Selling Price per unit $10.00 $10.00 $10.00 $10.00 Total Sales $400,000.00 $550,000.00 $600,000.00 $1,550,000.00 Answer 2 Break even point for the quarter in dollars = Fixed cost for the quarter / (1-variable cost % to sales) Break even point for the quarter in dollars = $400000 / (1-0.20) = $5,00,000 Break even point in units = Break even point in dollars / Selling price per unit = $500000/$10 = 50000 units Answer 3 Sales in dollars needed to reach operating profit target = [Target profit + Fixed cost] / [1 - variable cost % to sales] Sales in dollars needed to reach operating profit target = [$575000 + $400000] / [1 - 0.20] = $12,18,750 Answer 4 Cost volume profit analysis statement for the quarter 1st Quarter Sales $1,550,000.00 Less : Variable cost (20%) $310,000.00 Contribution Margin $1,240,000.00 Less : Fixed cost $400,000.00 Operating Profit $840,000.00 In order to break even , the firm must sale 50000 units for the quarter i.e. sales level should be maintained at $500000. To reduce this break even level and to improve the operating profit level, either the overall fixed cost should be lowered or variable cost per unit should be controlled.