Reference no: EM13763742

Robin Simmons is ready to complete a cost-volume-profit analysis for 2016 for the Stellar Packaging Products manufacturing plant to determine if the break-even point is achieved, given the expected decline in volume. Specific costs for production of 500,000 units include the following:

Stellar Packaging Products	Variable Costs Total	Fixed Costs Total
Raw materials	$         400,000
Direct manufacturing labor	$         200,000
Indirect manufacturing labor		$           105,000
Factory Insurance & Utilities		$            63,000
Depreciation -- Machinery and factory		$            38,500
Repairs and maintenance -- factory		$            28,000
Selling, marketing and distribution expenses	$            40,000	$            80,000
General and administrative expenses		$           120,000

There are no beginning or ending inventories. The total sales for 500,000 units produced are $2,000,000.

Instructions:

Answer the following questions given the fact pattern above, showing all calculations.

1. What is the contribution margin per unit for each chocolate bar produced, given the fact pattern above?
2. What is the Stellar Packaging's U.S. division break-even point in units and dollars, given the fact pattern above?
3. What is the Stellar Packaging's U.S. division margin of safety and degree of operating leverage, given the fact pattern above?
4. Write a brief explanation (approximately two paragraphs) that Simmons might deliver to management to inform them of the analytical outcome, given the projected revenue and cost. Does the company have to implement a cost-reduction strategy in order to break even?