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Homework answers / question archive / CVP Analysis Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for 2010 as follows: Sales $46,000,000 Operating expenses Variable expenses $32,200,000 Fixed expenses 7,500,000 Total expenses 39,700,000 Operating Profit $ 6,300,000 Required 1
CVP Analysis Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for 2010 as follows:
Sales $46,000,000 Operating expenses Variable expenses $32,200,000 Fixed expenses 7,500,000 Total expenses 39,700,000 Operating Profit $ 6,300,000 Required 1. Determine the breakeven point in sales dollars. 2. Determine the required sales in dollars to earn a before-tax profit of $8,000,000. 3. What is the breakeven point in sales dollars if the variable cost increases by 12 percent?
a) Computation of Break-even Point in Sales Dollars:
Break-even Sales = Fixed Cost/Contribution Margin Ratio
Here,
Contribution margin ratio = (Sales - Variable Cost)/Sales = ($46,000,000-$32,200,000)/$46,000,000 = 30%
Break-even Sales = $7,500,000/30% = $25,000,000
b) Computation of Required Sales in Dollars to earn a before-tax profit of $8,000,000:
Required Sales = (Fixed Cost + Target Profit)/Contribution Margin Ratio
= ($7,500,000+$8,000,000)/30%
Required Sales = $51,666,666.67
c) Computation of Breakeven Point in Sales Dollars if the variable expenses increases by 12%:
New variable expense = $32,200,000*1.12 = $36,064,000
Contribution margin ratio = ($46,000,000-$36,064,000)/$46,000,000 = 21.60%
Breakeven Sales = $7,500,000/21.60% = $34,722,222.22
