Problem 19-2A (Part Level Submission) Lorge Corporation has collected the follow

Question

Problem 19-2A (Part Level Submission) Lorge Corporation has collected the following information after its first year of sales. Sales were $900,000 on 90,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $16,700; direct labor $270,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $399,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans or the coming year as projected that unit Sales wil crease by 10% next year (b) Compute the break-even point in units and sales dollars for the first year. (Round contribution margin ratio to 2 decimal places e.g. 0.15 and final answers to 0 decimal places, e.g. 2,510.) Break-even point units Break-even point LINK TO TEXT

Explanation / Answer

Sales = 900000

Variable costs = 250000 *40% + 16700 + 270000 + 270000 * 20% + 399000 *70% = 720000

Fixed costs = 250000 *60% + 270000 * 80% + 399000 *30% = 485700

Contribution margin % = (sales - variable costs) / sales *100 = (900000 - 720000) /900000 * 100 = 20%

Break even sales = Fixed costs / Contribution margin % = 485700 /20% = 2428500

Break even point in units = 2428500 / 10 = 242850 (as one unit is sold for 10)

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