Question

CVP Analysis

Van Otis Chocolates sells boxes of designer chocolates. They had the following information for the year:

         Sales (6500 units)……………………$81,250

         Variable Expenses …………………..$52,000

         Fixed Expenses………………….……$49,500

Calculate the following (all count as 1 point each):

1. Calculate the UCM (unit contribution margin):

2. Calculate the CMR (contribution margin ratio):

3. Calculate the breakeven point in units:

4. Calculate the breakeven point in sales dollars:

5. Assume they want to earn a profit of $36,000. How many units do they have to sell?

6. What is the margin of safety in units?

Answer 1

1. The unit contribution margin = (Sales - Variable Cost) / Total Units

= ( $ 81,250 - $ 52,000) / 6,500 Units

= $ 4.50 per unit

2. contribution margin ratio = unit contribution margin / Selling Price Per Unit

= $ 4.50 /( $ 81,250 / 6,500)

= 4.50/ 12.50

= 36.00%

3.The break even point in units = Fixed cost /unit contribution margin

= $ 49,500 / $ 4.50 per unit

= 11,000 units

4. The break even point in sales dollars = break even point in units * selling price per unit

= 11,000 units * $ ( 81250 / 6500)

= $ 137,500