Poole corporation has collected the following information

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Poole Corporation has collected the following information after its first year of sales. Net sales were $1,706,800 on 100,400 units; selling expenses $237,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $280,000; administrative expenses $281,000 (20% variable and 80% fixed); manufacturing overhead $361,000 (69% variable and 31% 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. (Assume that fixed costs will remain the same in the projected year.)

Compute the break-even point in units and sales dollars for the current year.

he company is considering a purchase of equipment that would reduce its direct labor costs by $104,700 and would change its manufacturing overhead costs to 31% variable and 69% fixed (assume total manufacturing overhead cost is $361,000, 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 $237,000, as above). Assuming that net sales remain at first-year levels, compute (1) the contribution margin and (2) the contribution margin ratio, and recompute (3) the break-even point in sales dollars.

Reference no: EM13599466


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