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molhogRobin Simmons is ready to complete a cost-volume-profit analysis for 2016 for the Stellar Packaging Products manufacturing plant to determine if the break-even point is achieved, given the expected decline in volume. Specific costs for production of 500,000 units include the following:
Stellar Packaging Products | Variable Costs Total | Fixed Costs Total |
Raw materials | $ 400,000 |
|
Direct manufacturing labor | $ 200,000 |
|
Indirect manufacturing labor |
| $ 105,000 |
Factory Insurance & Utilities |
| $ 63,000 |
Depreciation -- Machinery and factory |
| $ 38,500 |
Repairs and maintenance -- factory |
| $ 28,000 |
Selling, marketing and distribution expenses | $ 40,000 | $ 80,000 |
General and administrative expenses |
| $ 120,000 |
There are no beginning or ending inventories. The total sales for 500,000 units produced are $2,000,000.
Instructions:
Answer the following questions given the fact pattern above, showing all calculations.
- What is the contribution margin per unit for each chocolate bar produced, given the fact pattern above?
- What is the Stellar Packaging’s U.S. division break-even point in units and dollars, given the fact pattern above?
- What is the Stellar Packaging’s U.S. division margin of safety and degree of operating leverage, given the fact pattern above?
- Write a brief explanation (approximately two paragraphs) that Simmons might deliver to management to inform them of the analytical outcome, given the projected revenue and cost. Does the company have to implement a cost-reduction strategy in order to break even?
10 years ago
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breakeven.xlsx
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