Cost - Volume - Profit Analysis Place your answers in the spaces provided below.
ID: 2464866 • Letter: C
Question
Cost - Volume - Profit Analysis Place your answers in the spaces provided below. Show all computations. Circle your answers. Kate is considering going into business producing music books to sell to elementary schools She has an offer from a publication firm that will charge her a $5,000 setup fee and $1.50 per book. She estimates that she can sell each book for $4.00. A. What is the contribution margin per book? B. Prepare a CVP income statement. C. How many books does Kate need to sell in order to break even? D. Assume that Kate wants to earn a profit of $4,000. Calculate the number of books Kate needs to sell to earn a profit of $4,000. E. Assume that Kate estimates that she can sell 3,500 books. What is Kate's margin of safety in number of units and margin of safety rate? PART III: CVP Solution Section A. Contribution margin per unit B. CVP Income statement C. Number of books to break even D. Number of books for $4,000 profit E. Margin of safety in units and margin of safety rate.Explanation / Answer
1) contribution margin per book = selling cost- variable cost = $ 4-$ 1.5= $ 2.5 per book
2) per this calculation number of books sold is not given
3)break even = fixed cost/ contribution per unit=$ 5000/2.5= 2000 books
4)required sales of books = fixed cost +profit/ contribution per book
=$ 5000+$ 4000/2.5= 3,600 books
5)margin of saftey units = total sale units - break even units = 3500-2000 = 1500 books
margin of safty rate = 1500/3500= 42.85%