Reference no: EM133014240
Questions -
Q1. Fontillas Manufacturing Inc. had sales of $2.60 million for the first quarter of 2020. In making the sales, the company incurred the following costs and expenses:
Variable Fixed
Cost of goods sold $916,500 $442,000
Selling expenses 65,000 41,000
Administrative expenses 86,500 95,000
Prepare CVP income statement for the quarter ended March 31, 2020.
Q2. Queensland Company makes radios that sell for $40 each. For the coming year, management expects fixed costs to total $158,600 and variable costs to be $30.00 per unit.
Calculate the break-even point in dollars using the contribution margin ratio.
Calculate the margin of safety ratio assuming actual sales are $793,000.
Calculate the sales dollars required to earn operating income of $115,000.
Q3. Embleton Company estimates that variable costs will be 60% of sales, and fixed costs will total $1,047,200. The selling price of the product is $7. Calculate the break-even point in units and dollars.
Assuming actual sales are $3,272,500, calculate the margin of safety in dollars and as a ratio.
Q4. Alice Oritz is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $30,780 in fixed costs to the $191,520 currently spent. In addition, Alice is proposing that a 10% price decrease ($30 to $27.00) will produce a 20% increase in sales volume (19,000 to 22,800). Variable costs will remain at $12 per pair of shoes. Management are impressed with Alice's ideas but are concerned about the effects that these changes will have on the break-even point and the margin of safety.
1. Calculate the current break-even point in units, and compare it with the break-even point in units if Alice's ideas are used.
2. Calculate the margin of safety ratio for current operations and after Alice's changes are introduced.
3. Prepare CVP income statements for current operations and after Alice's changes are introduced.
4. Would you make the changes suggested?