# CVP

Assignment #2:

Show your work to get any partial credit.  Give me the formula that you might use or show other thought process. If you just give me an answer and it’s not the right one, you will get zero points for that question.

Other formulas needed outside of the reading material:

Sales = Variable expenses + Fixed expenses +Profit

Sales = Quantity * Units

Profit = (Sales × CM ratio) – Fixed Cost

Review Problems : Contribution margin and ratio

Problem 1:

Sales per unit = \$250

Variable Cost per unit = \$150

Units = 350

1. Calculate Contribution Margin Per Unit (2 points)
2. Calculate Contribution Margin (CM) Ratio Per Unit (3 points)
3. Calculate Total Contribution Margin (CM) Dollars (5 points)

Problem 2:

Sales = \$5,000,000

CM Ratio = 0.40

Fixed cost = \$1,600,000

1. Calculate Profit.

Problem 3:

A company has budgeted sales of \$200,000, a profit of \$60,000 and fixed expenses of \$40,000.

1. Calculate contribution margin ratio.

Review Problem : Break-even point

Problem 4:

Voltar Company manufactures and sells a telephone answering machine. The company’s contribution format income statement for the most recent year is given below:

 Total Per unit Pct. of sales (Ratios) Sales \$1,200,000 \$60 100% Less variable expenses 900,000 45 ?% ——– ——– ——– Contribution margin 300,000 15 ?% Less fixed expenses 240,000 ====== ====== ——– Net operating income \$60,000 ======
1. What is the Contribution Margin (CM) Ratio (or percent of sales)? (5 points)
2. Calculate break-even point both in total units and total sales dollars. (10 points)

Problem 5:

Management is anxious to improve the company’s profit performance. Assume that next year management wants the company to earn a minimum profit of \$90,000.

1. How many units will have to be sold to meet the target profit figure?

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