aventino917
New member
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- Feb 10, 2013
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Questions:
I need to know the answer to the questin below as well as evidence how I have calculated the correct answer. Can someone help me with this?
1. CVP and Breakeven
Wilson is a wholesale distributor of widgets. The company services groceries, convenience stores, and superstores like Wal-Mart. Small but steady growth has been achieved over the past few years while widget prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to project the current year's after tax net income of $264,960.
Average selling price: $9.60 per case
Average variable costs:
Widget production: $4.80 per case
Selling expense: $.96 per case
Total: $5.76 per case
Annual fixed costs: $1,056,000
Expected annual sales volume: 390,000 cases
Tax rate: 40%
Manufacturers of widgets have announced that they will increase prices of their products on average 15% in the coming year due to increases in raw materials and labor costs. All other variable costs change 15% as well. Wilson expects all other costs will remain at the same rates or levels as the current year. These changes have not been entered into the information presented above.
Answer the following:
What is the number of units that Wilson must achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of widgets remains at $9.60 per case and the variable production costs of widgets increase 15%?
I need to know the answer to the questin below as well as evidence how I have calculated the correct answer. Can someone help me with this?
1. CVP and Breakeven
Wilson is a wholesale distributor of widgets. The company services groceries, convenience stores, and superstores like Wal-Mart. Small but steady growth has been achieved over the past few years while widget prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to project the current year's after tax net income of $264,960.
Average selling price: $9.60 per case
Average variable costs:
Widget production: $4.80 per case
Selling expense: $.96 per case
Total: $5.76 per case
Annual fixed costs: $1,056,000
Expected annual sales volume: 390,000 cases
Tax rate: 40%
Manufacturers of widgets have announced that they will increase prices of their products on average 15% in the coming year due to increases in raw materials and labor costs. All other variable costs change 15% as well. Wilson expects all other costs will remain at the same rates or levels as the current year. These changes have not been entered into the information presented above.
Answer the following:
What is the number of units that Wilson must achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of widgets remains at $9.60 per case and the variable production costs of widgets increase 15%?
| Wilson is a wholesale distributor of widgets. The company services groceries, convenience stores, and super stores like Wal-mart. Small but steady growth has been achieved over the past few years while widget prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to project the current years after tax net income of $264,960. | Complete each highlighted item below based on the information provided in the problem | |||||||
| Per Case | Item B | Item C | ||||||
| Average selling price per case | $ 9.60 | $ 3,744,000 | $ 11.04 | $ 4,305,600 | $ 9.60 | $ 3,744,000 | ||
| Average variable costs: | ||||||||
| Widget production per case | $ 4.80 | $ 1,872,000 | $ 5.52 | $ 2,152,800 | $ 4.80 | |||
| Selling expense per case | $ 0.96 | $ 374,400 | $ 1.10 | $ 430,560 | $ 0.96 | |||
| Total Variable Costs | $ 5.76 | $ 2,246,400 | $ 6.62 | $ 2,583,360 | $ 7.61 | $ 2,967,900 | ||
| Contribution Margin | $ 3.84 | $ 1,497,600 | $ 4.42 | $ 1,722,240 | $ 1.99 | $ 776,100 | ||
| 40% | 40% | 40% | ||||||
| Expected annual sales volume in cases | $ 390,000.00 | |||||||
| Annual fixed costs $_________ | $ 1,056,000 | $ 1,056,000 | $ 1,056,000 | $ 1,056,000 | $ 1,056,000 | $ 1,056,000 | ||
| Profit before tax | $ 441,600 | $ 666,240 | $ (279,900) | |||||
| Tax rate | 40% | $ 176,640 | 40% | 40% | $ (111,960) | |||
| Net Profit | $ 264,960 | $ | $ (167,940) | |||||
| Manufacturers of widgets have announced that they will increase prices of their products an average 15% in the coming year due to increases in raw materials and labor costs. Wilson expects all other costs will remain at the same rates or levels as the current year. These changes have not been inputted into the information presented above. | ||||||||
| BE is the point at which total costs = total revenue. | ||||||||
| a. What is Wilson’s break-even point in cases of widgets for the current year? | 275,000 | F / (Pu - Bu) | Formula on page 167-168 | |||||
| fixed / (price per unit - vc per unit) | You can also take fixed costs/contrib margin per unit | |||||||
| b. What selling price per case must Wilson charge to cover the 15% increase in variable production costs and still maintain the current contribution margin percentage? | 40% | Current Contribution Margin | Step 1. Determine current Contrib Margin % | |||||
| $ 6.62 | New Variable Cost with 15% increase | Step 2: What is new total variable cost at 15% increase | ||||||
| $ 11.04 | Selling Price Required (6.62 / (1 - .4)) | Step 3: Determine New Selling Prince | ||||||
| Step 4: Verify your answer see B above | ||||||||
| c. What volume of sales dollars must Wilson achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of widgets remains at $9.60 per case and the variable production costs of widgets increase 15%? | Use the CVP formula on page 167. | |||||||
| N = Pu - (F + Bu) | Step 1. Get formula from text on page 167 | |||||||
| Step 2: Determine Target NI before taxes (because tax rates are same) | ||||||||
| Use the steps listed and provide the algebraic equations | Step 3: Complete formula by entering known variables | |||||||
| to solve for "u" | Step 4: Simplify like terms - remember algebra!! | |||||||
| Step 5: Solve for unknown variable (u) | ||||||||
| Step 6: Verify your answer - See C above | ||||||||
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