1. Cerulean, Violet and Pink, known to their customers as CVP, make and sell a single product nationwide. Information about the product follows: Unit Selling Price $75.00 Unit Variable Cost 38.00 Total Fixed Cost $11,400,000 Expected sales 1,215,000 units Required:
a. Calculate CVP's break-even point in both units and sales dollars.
b. Calculate CVP's expected income for next year at their planned sales volume. Ignore income taxes for this calculation.
c. If CVP's variable cost of manufacturing increases by 12% next year and they raise their selling price by 4%, will their break-even point and expected income increase or decrease? Show calculations.
d. How did CVP develop the fixed and variable cost information used in this analysis? Explain in your own words.
e. What limitations, if any, would you express to CVP as they prepare to use this information to plan their next year's operations?