GIVEN: CVP Company manufactures and sells Product V. As part of the budgeting process, management made the following estimates for 2016 related to the production and sale of 10,000 units of Product V. CVP Company maintains near zero inventory levels at year-end so the total of all production costs approximates cost of goods sold. Product V sells for $100 per unit.
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Estimated Fixed Costs
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Estimated Variable Costs
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Production Costs:
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Direct Materials
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$120,000
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Direct Labor
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$180,000
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Factory Overhead
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$95,000
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$30,000
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Selling & Administrative Costs:
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Salaries & Commissions
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$90,000
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$40,800
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Advertising
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$60,000
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Miscellaneous selling & administrative
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$35,000
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$19,200
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$280,000
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$390,000
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REQUIRED: (Show supporting calculations.)
Part 1: Prepare an estimated product income statement for 2016 using the contribution margin format.
Part 2: Determine the expected contribution margin per unit and the contribution margin ratio.
Part 3: Determine the breakeven point in units and dollars.
Part 4: Determine the expected margin of safety in dollars, units, and as a percentage of sales.
Part 5: Determine the degree of operating leverage.
Part 6: Construct a cost-volume-profit graph for the range of 0 units to 10,000 units. Label the axes, lines and breakeven point.