Beantown Baseball Company makes baseballs that sell for $13 per two-pack. Current annual production and sales are 576,000 baseballs. Costs for each baseball are as follows: Direct material $2.00 Direct labor 1.25 Variable overhead 0.50 Variable selling expenses 0.25 Total variable cost $4.00 Total fixed overhead $750,000 a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the company. Note: Round percentage to two decimal places (for example, round 32.5555% to 32.56%). Unit contribution margin in dollars $Answer Contribution margin ratio Answer% b. Determine the break-even point in number of baseballs. Answer c. Calculate the dollar break-even point using the contribution margin ratio.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
CVP single product; comprehensive
Beantown Baseball Company makes baseballs that sell for $13 per two-pack. Current annual production and sales are 576,000 baseballs. Costs for each baseball are as follows:
| Direct material | $2.00 |
| Direct labor | 1.25 |
| Variable overhead | 0.50 |
| Variable selling expenses | 0.25 |
| Total variable cost | $4.00 |
| Total fixed overhead | $750,000 |
a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the company.
Note: Round percentage to two decimal places (for example, round 32.5555% to 32.56%).
Unit contribution margin in dollars $Answer
Contribution margin ratio Answer%
b. Determine the break-even point in number of baseballs. Answer
c. Calculate the dollar break-even point using the contribution margin ratio.
Note: Round amount to the nearest whole dollar.
$Answer
d. Determine the company’s margin of safety in number of baseballs, in sales dollars, and as a percentage.
Note: Round margin of safety percentage to two decimal places (for example, round 32.555% to 32.56%).
Margin of safety in baseballs: Answer
Margin of safety in dollars: $Answer
Margin of safety percentage: Answer%
e. (1) Compute the company’s degree of operating leverage.
Note: Round amount to two decimal places (for example, round 32.555 to 32.56).
Degree of operating leverage Answer
(2) If sales increase by 30 percent, by what percentage would pre-tax income increase?
Note: Round to the nearest whole percentage point (for example, round 24.5% to 25%).
Percentage increase in pre-tax income Answer%
f. How many baseballs must the company sell if it desires to earn $657,600 in pretax profit? Answer baseballs
g. If the company wants to earn $450,000 after tax and is subject to a 40 percent tax rate, how many baseballs must be sold? Answer baseballs
h. How many baseballs would the company need to sell to break even if its fixed cost increased by $30,000? (Use original data.) Answer baseballs
i. Beantown Baseball Company has received an offer to provide a one-time sale of 12,000 baseballs at $8.80 per two-pack to the Lowell Spinners. This sale would not affect other sales, nor would the cost of those sales change. However, the variable cost of the additional units would increase by $0.20 for shipping, and fixed cost would increase by $3,600. Based solely on financial information, should the company accept this offer?
Note: Do not use a negative sign with your answer.
Answer $Answer
The company should Answer
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