Cottonwood Company reports the following operating results for the month of Apri
ID: 2388926 • Letter: C
Question
Cottonwood Company reports the following operating results for the month of April.
COTTONWOOD COMPANY
CVP Income Statement
For the Month Ended April 30, 2011
Total Per Unit
Sales (8,200 units) $442,800 $54.00
Variable costs 225,828 27.54
Contribution margin 216,972 $26.46
Fixed expenses 179,928
Net income $37,044
Management is considering the following course of action to increase net income: Reduce the selling price by 12%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 31%.
Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars, assuming changes to sales price and volume as described above. (Round intermediate calculations to 2 decimal places, e.g. 12.52. Round answers to 0 decimal places, e.g. 125.)
Break-even point (in units) ______ units
Break-even point (in dollars) $________
Margin of safety $_______
Explanation / Answer
Total Per Unit Sales (10742 units) $510460 $47.52 Variable costs $295835 $27.54 Contribution margin $214625 $19.98 profit volume ratio=contribution/sales*100 214625/510460*100=42.04% Break-even point (in units)=fixed expense/contribution margin 179,928/19.98=9005 units Break-even point (in dollars) =fixed expenses/pv ratio 179,928/42.04%=$427992 Margin of safety $=projected sales-breakeven sales $510460-$427992=$82468