Question

Crane Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $240,000 (40% variable and 60% fixed), direct materials $514,000, direct labor $270,800, administrative expenses $280,000 (20% variable and 80% fixed), and manufacturing overhead $376,000 (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. (Assume that fixed costs will remain the same in the projected year.)

(1)		Contribution margin for current year		$
		Contribution margin for projected year		$
(2)		Fixed Costs		$

  

  

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

Break-even point in units			units
Break-even point in dollars		$

  

  

The company has a target net income of $206,000. 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? (Round answer to 1 decimal place, e.g. 10.5.)

Margin of safety ratio

%

Answer 1