requesting assistance for cost volume profit analysis
Part A
Wilson Company sells lawn ornaments (rocks) with university athletic logos.The selling price of each lawn ornament is $25.00.The variable costs associated with each lawn ornament are $15.00 and the fixed costs for the company are $100,000 per year.Ignore income taxes.
Required
- How many lawn ornaments does Wilson need to sell in order to break even?
- Determine the dollar amount of sales that Wilson needs to make to generate a profit of $150,000.
- Prepare a contribution margin income statement for the year assuming that Wilson sold 25,000 lawn ornaments.
- Calculate the margin of safety in dollars assuming the company expects sales consistent with selling 25,000 lawn ornaments.
- The company is considering purchasing a machine to automate the production of lawn ornaments.Fixed costs will increase by $50,000 and variable costs will decrease by $7.50 per lawn ornament.Should the company pursue the purchase of the machine?Show calculations to support your decision.
Part B
Bearcat Paws produces two sizes of Christmas Ornaments.The selling prices and variable costs are as follows:
|
Small |
Large |
|
|
Selling price per ornament |
$8.00 |
$20.00 |
|
Variable cost per ornament |
4.00 |
8.00 |
The company sells three small Christmas ornaments for every large Christmas ornament.
The contribution margin income statement for the year ended December 31, 2015 follows:
|
Sales revenue |
$225,000 |
|
Variable costs |
90,000 |
|
Contribution margin |
135,000 |
|
Fixed costs |
75,000 |
|
Profit |
$60,000 |
Required
- Calculate the weighted average contribution margin per unit for Bearcat Paws.
- Determine the break-even point in units.
- Determine the number small and the number of large ornaments that would need to be produced at the break-even point.
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