COTTONWOOD COMPANY CVP Income Statement For the Month Ended April 30, 2016 Total
ID: 2409969 • Letter: C
Question
COTTONWOOD COMPANY CVP Income Statement For the Month Ended April 30, 2016 Total $423,500 232,925 190,575 141,075 $49,500 Per Unit $55.00 30.25 Sales (7,700 units) Variable costs Contribution margin Fixed expenses Operating income Management is considering the following course of action to increase operating income: Reduce the selling price by 10%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 30% Using the contribution margin technique, calculate the break-even point in units and dollars and margin of safety in dollars. Assuming no changes to selling price or costs. (Round answers to 0 decimal places, e.g. 125.) Break-even point Break-even point d Margin of safety units Assuming changes to sales price and volume as described above. (Round answers to 0 decimal places, e.g. 125.) Break-even point Break-even point d Margin of safety unitsExplanation / Answer
a) Break even point = 141075/24.75 = 5700 units
Break even point = 5700*55 = $313500
Margin of safety = 423500-313500 = $110000
b) Contribution margin per unit = (55*90%)-30.25 = 19.25 per unit
Break even point = 141075/19.25 = 7329 units
Break even point = 7329*49.5 = $362786
Margin of safety = (7700*1.3)-7329*49.50 = $132710