Robin Simmons is ready to complete a cost-volume-profit analysis for 2016 for the Stellar Packaging Products manufacturing plant to determine if the break-even point is achieved, given the expected decline in volume. Specific costs for production of 500,000 units include the following:
|
Stellar Packaging Products
|
Variable Costs Total
|
Fixed Costs Total
|
|
Raw materials
|
$ 400,000
|
|
|
Direct manufacturing labor
|
$ 200,000
|
|
|
Indirect manufacturing labor
|
|
$ 105,000
|
|
Factory Insurance & Utilities
|
|
$ 63,000
|
|
Depreciation -- Machinery and factory
|
|
$ 38,500
|
|
Repairs and maintenance -- factory
|
|
$ 28,000
|
|
Selling, marketing and distribution expenses
|
$ 40,000
|
$ 80,000
|
|
General and administrative expenses
|
|
$ 120,000
|
There are no beginning or ending inventories. The total sales for 500,000 units produced are $2,000,000.
Instructions:
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 Stellar Packaging's U.S. division break-even point in units and dollars, given the fact pattern above?
- What is the Stellar Packaging's U.S. division margin of safety and degree of operating leverage, given the fact pattern above?
- Write a brief explanation (approximately two paragraphs) that Simmons might deliver to management to inform them of the analytical outcome, given the projected revenue and cost. Does the company have to implement a cost-reduction strategy in order to break even?