Reference no: EM13341176

CVP Analysis

Nymph Ltd manufactures and sells artificial Christmas trees. Nymph Ltd sold 75,000 Christmas treesin 2013 with the following results:

Sales revenue                            $1,125,000

Variable labour costs                      187,500

Variable machine costs                   37,500

Variable material costs                   600,000

Fixed Costs                                   190,000

Operating Profit                            $110,000

Nymph expects the variable labour costs to increase by $1 per unit and the variable material costs to increase by $1 per unit in 2014.

Required:

(a)    Assuming the sale price for each Christmas tree stays the same in 2014; calculate the contribution margin per Christmas tree for 2014. Show all workings.

(b)   Nymph Ltd wants to increase its operating profit by 20% in 2014. How many Christmas trees will Nymph Ltd need to sell to reach its desired operating profit? Show all workings.                                                                            

(c)    Nymph Ltd is also considering purchasing a new piece of machinery that will eliminate the variable labour costs but increase the fixed costs by $50,000. If Nymph purchases this machinery for 2014 how many Christmas trees would Nymph need to sell to reach the desired operating profit calculated in part (b)? Show all workings

(d)    Discuss the effect that the purchase of the new machine by Nymph Ltd will have on the business' operational gearing.