Depardieu Company_CVP Analysis

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Description

Depardieu Company.,
produces drone video helicopters for recreational surveillance. Sales have been
very erratic, with some months showing a profit and some months showing a loss.
The company’s contribution format income statement for the most recent month is
given below:
Sales
(12,900 units at $40 per unit) $516,000
Variable
expenses 309,600
Contribution margin 206,400
Fixed
expenses 230,400
Net operating loss $(24,000)

Required:
1. Compute
the company’s CM ratio and its break-even point in both units and dollars.
(Omit the “%” and “$” signs in your response.)

CM
ratio %
Break-even
point in units
Break-even
point in dollars $

2.The sales manager feels that an $6,000
increase in the monthly advertising budget, combined with an intensified effort
by the sales staff, will result in a $86,000 increase in monthly sales. If the
sales manager is right, what will the revised net operating income or loss?
(Use the incremental approach in preparing your answer.) (Omit the
“$” sign in your response.)

is
$

3. Refer to the original data. The president is
convinced that a 10% reduction in the selling price, combined with an increase
of $38,000 in the monthly advertising budget, will double unit sales. What will
the new contribution format income statement look like if these changes are
adopted? (Input all amounts as positive values except losses which should be
indicated by minus sign. Omit the “$” sign in your response.)

Contribution Income Statement $
$

4.Refer to the original data. The
company’s advertising agency thinks that a new package would help sales. The
new package being proposed would increase packaging costs by $0.40 per unit.
Assuming no other changes, how many units would have to be sold each month to
earn a profit of $5,000? (Round your intermediate calculations to 2 decimal
places and final answer to the nearest whole number.)

Sales
units

5. Refer to the
original data. By automating, the company could slash its variable expenses in
half. However, fixed costs would increase by $116,000 per month.

a.Compute the new CM ratio and the new
break-even point in both units and dollars. (Do not round intermediate
calculations. Round your final answers to the nearest whole number. Omit the
“%” and “$” signs in your response.)

CM
ratio %
Break-even
point in units
Break-even
point in dollars $

b. Assume that the company expects to sell 20,600
units next month. Prepare two contribution format income statements, one
assuming that operations are not automated and one assuming that they are.
(Omit the “$” and “%” signs in your response.)

Not
Automated
Automated

Total
Per Unit % Total Per Unit %
$ $ $
$

$ $

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