Question

Victoria Company reports the following operating results for the month of April.

VICTORIA COMPANY
CVP Income Statement
For the Month Ended April 30, 2017

Total

Per Unit

Sales (8,600 units) $455,800 $53
Variable costs 223,342 25.97
Contribution margin 232,458 $27.03
Fixed expenses 205,428
Net income $27,030

Management is considering the following course of action to increase net income: Reduce the selling price by 5%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 20%.

Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars: (Round intermediate calculations to 4 decimal places e.g. 0.2522 and final answer to 0 decimal places, e.g. 2,510.)

(a) Assuming no changes to selling price or costs.

Break-even point
Victoria Company reports the following operating r

units
Break-even point
$Victoria Company reports the following operating r

Margin of safety
$Victoria Company reports the following operating r


(b1) Assuming changes to sales price and volume as described above.

Break-even point
Victoria Company reports the following operating r

units
Break-even point
$Victoria Company reports the following operating r

Margin of safety
$Victoria Company reports the following operating r

Answer 1

Current sales level:

Breakeven in units 7600 units

Breakeven $ $402,800

Margin of safety is $53,000

When changes occured:

Breakeven in units 8,426 units

Breakeven $ $424,249

Margin of safety is $95,363

Step-by-step explanation:

Breakeven in units=fixed expenses/contribution margin per unit

Fixed expenses is $205,428

contribution margin per unit is $27.03

breakeven in units=$205,428/$27.03=7600 units

Breakeven in $=breakeven in units *selling price per unit

=7600*$53=$402,800

Margin of safety=Actual sales-breakeven in units

=8600-7600=1000

margin safety in $=$53*1000=$53,000

If the changes are considered,the revised figures are computed thus:

Reduced selling price=$53*(1-5%)=$50.35

increased sales units=8600*(1+20%)=10,320 units

Breakeven in units=fixed expenses/contribution margin per unit

Fixed expenses is $205,428

contribution margin per unit is =$50.35-$25.97=$24.38

breakeven in units=$205,428/$24.38 = 8,426 units

Breakeven in $=breakeven in units *selling price per unit

= 8,426*$50.35=$424,249

Margin of safety=Actual sales-breakeven in units

=10,320-8,426=1894 units

margin safety in $=$50.35*1894 =$95,362.9