ASSUMPTIONS Product #1 Unit CM CM % Breakeven point Hand-held pliers 15.00 75% C
ID: 2544232 • Letter: A
Question
ASSUMPTIONS Product #1 Unit CM CM % Breakeven point Hand-held pliers 15.00 75% Cornell Tool Manufacturingg Pro Forma Contribution Margin Income Statement For the fiscal year ended December 31 Product #1 Hand-held pliers Sales price per unit Variable costs per unit 1.00 2.00 0.50 0.50 1 00 5.00 8.000 Total Packaging material Raw material n units in sales revenue Sales revenue Less: variable costs Contribution margin Less fixed costs 384,000.00 96,000.00 288,000.00 120,000 00 200,000.00 Shipping Sales commission Target profit volume in uniis 18,000 Total variable cost per unit in sales revenue 360,000.00 Annual fixed costs: Questions Metal molding machine Plastic Sander 100,000.00 $ 15000 00 5,000.00 (1) If Comell achieves its expected monthly sales in units, will the company breakeven? Yos grip molder costs Total fixcd costs 120,000.00 (2) Based on your projections, will Comell achieve its target profit level for the first fiscal year? Yes sales in units 1,600 arget profit-lewel for the first fiscal year (3) Based on your projections, by how much will Cornell exceed and or miss its target profit? Exceed by 18,000 (4) If Comell achieves its expected monthly sales in units, how many months will it take the company to breakeven? 5 months (5) Based on your projections, what will be the company's margin of safety (in dollars)? 184000Explanation / Answer
Solution:
If sales commissiong will be 2.5% of sales revenu and $1,500 per month, then:
Revised variable cost per unit = $5 - $1 + ($20*2.5%) = $4.50
Revised annual fixed cost = $120,000 + ($1,500*12) = $138,000
Revised contribution margin per unit = $20 -$4.50 = $15.50
Now new operating income at exisiting level of sales = New Contribution - New Fixed Cost
= (19,200 * $15.50) - $138,000 = $159,600
New contribution margin ratio = $15.50/$20 = 77.50%
New Breakeven sales = $138,000 / 77.50% = $178,065
New margin of safety = Current sales - Breakven sales = $384,000 - $178065 = $205,935