Reference no: EM13747746
Lorge Corporation has collected the following information after its first year of sales. Sales were $ 1,641,600 on 102,600 units; selling expenses $ 246,240 (40% variable and 60% fixed); direct materials $ 524,286 ; direct labor $ 292,410 ; administrative expenses $ 287,280 (20% variable and 80% fixed); manufacturing overhead $ 369,360 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.
Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year.
(1) Contribution margin for current year $
Contribution margin for projected year $
(2) Fixed costs for current year $
Compute the break-even point in units and sales dollars for the first year.
Break-even point units
Break-even point $
The company has a target net income of $ 318,060. What is the required sales in dollars for the company to meet its target?
Sales dollars required for target net income $
If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?
Margin of safety ratio %
The company is considering a purchase of equipment that would reduce its direct labor costs by $ 106,704 and would change its manufacturing overhead costs to 30% variable and 70% fixed (assume total manufacturing overhead cost is $ 369,360 , as above). It is also considering switching to a pure commission basis for its sales staff. This would change selling expenses to 90% variable and 10% fixed (assume total selling expense is $ 246,240 as above). Compute (1) the contribution margin and (2) the contribution margin ratio, and re compute (3) the break-even point in sales dollars. (Round contribution margin ratio to 0 decimal places, e.g. 25% and all other answers to 0 decimal places, e.g. 2,520.)
1. Contribution margin
2. Contribution margin ratio %
3. Break-even point
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