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

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