Question

PROBLEM 1 CVP ANALYSIS University Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $47 throughout the country to loyal alumni of over 3,600 schools. University Monograms’ variable costs are 42% of sales, and fixed costs are $138,272 per month. REQUIRED: 1. Calculate the contribution margin ratio.

2. Calculate the company’s break-even point for the year in units and in sales dollars.

3. Calculate the company’s required sales in dollars in order to earn before-tax income of $500,000 in the coming

Answer 1

Answer:-2)- Break even point in dollars =Fixed costs/Contribution margin ratio

=$138272/58% = $238400

Break even point in sales units= Fixed costs/ Contribution margin per unit

=$138272/$27.26 per unit =5072 units

Contribution margin ratio =1- Variable cost ratio

=1-.42 =0.58 or 58%

Contribution margin per unit= Selling price per unit-Variable cost per unit

=$47 per unit –($47 per unit*42%) =$27.26 per unit

3)- Dollar sales required to earn profit of 500000=(Fixed cost+ Desired profit)/ Contribution margin ratio

=($138272+$500000)/58%

=$1100469