Reference no: EM131175502

Steve Smith is ready to complete a cost-volume-profit analysis for the current year for the U.S. chocolate bar manufacturing plant to determine if the breakeven point is achieved. Specific costs for production of 400,000 units include the following:

Swiss Chocolate Manufacturing Company	Variable Costs Total	Fixed Costs Total
Raw materials	$ 200,000
Direct manufacturing labor	$ 100,000
Indirect manufacturing labor		$ 52,500
Factory insurance and utilities		$ 31,500
Depreciation - machinery and factory		$ 38,500
Repairs and maintenance - factory		$ 14,000
Selling, marketing, and distribution expenses	$ 20,000	$ 40,000
General and administrative expenses		$ 60,000

There are no beginning or ending inventories. The total sales for 400,000 units produced are $1,050,000.

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

• What is the contribution margin per unit for each chocolate bar produced given the fact pattern above?

• What is the Swiss Chocolate's U.S. division breakeven point in units and dollars given the fact pattern above?

• What is the Swiss Chocolate's U.S. division margin of safety and degree of operating leverage given the fact pattern above?

• Assume the fact pattern above changes. Swiss Chocolate would like to hire another salesperson at a fixed salary of $40,000 per year to focus primarily on marketing through social media. In addition, a drought in Brazil has resulted in higher costs for its major raw material, cacao; raw material costs will increase 5 cents per unit. Finally, the U.S. division's parent in Switzerland has indicated that its forecast target net income for the year is $150,000. What is the level of sales in units and dollars required to achieve this targeted level of net income? Assume a 30% tax rate.

• What cost increases, fixed or variable, result in the greatest challenge in realizing a desired level of profit? In the context of Swiss Chocolate, explain your answer.