CVP analysis—what-if questions; sales mix issue Miller Metal Co. makes asingle product that sells for $32 per unit. Variable costs are $20.80 per unit, and fixed costs total $47,600 per month.Required:a. Calculate the number of units that must be sold each month for the firm to break even.b. Assume current sales are $160,000. Calculate the margin of safety and the margin of safety ratio.c. Calculate operating income if 5,000 units are sold in a month.d. Calculate operating income if the selling price is raised to $33 per unit, advertising expenditures are increased by $7,000 per month, and monthly unit sales volume becomes 5,400 units.e. Assume that the firm adds another product to its product line and that the new product sells for $20 per unit, has variable costs of $14 per unit, and causes fixed expenses in total to increase to $63,000 per month. Calculate the firm’s operating income if 5,000 units of the original product and 4,000 units of the new product are sold each month. For the original product, use the selling priceand variable cost data given in the problem statement.f. Calculate the firm’s operating income if 4,000 units of the original product and 5,000 units of the new product are sold each month.g. Explain why operating income is different in parts e and f, even though sales totaled 9,000 units in each case.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
CVP analysis—what-if questions; sales mix issue Miller Metal Co. makes a
single product that sells for $32 per unit. Variable costs are $20.80 per unit, and fixed costs total $47,600 per month.
Required:
a. Calculate the number of units that must be sold each month for the firm to break even.
b. Assume current sales are $160,000. Calculate the margin of safety and the margin of safety ratio.
c. Calculate operating income if 5,000 units are sold in a month.
d. Calculate operating income if the selling price is raised to $33 per unit, advertising expenditures are increased by $7,000 per month, and monthly unit sales volume becomes 5,400 units.
e. Assume that the firm adds another product to its product line and that the new product sells for $20 per unit, has variable costs of $14 per unit, and causes fixed expenses in total to increase to $63,000 per month. Calculate the firm’s operating income if 5,000 units of the original product and 4,000 units of the new product are sold each month. For the original product, use the selling price
and variable cost data given in the problem statement.
f. Calculate the firm’s operating income if 4,000 units of the original product and 5,000 units of the new product are sold each month.
g. Explain why operating income is different in parts e and f, even though sales totaled 9,000 units in each case.
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