CVP Analysis

Part I

Requirement 1
Units	Price	Totals
Sales	60,000	$12.50	$750,000
Variable Costs	60,000	$6.00	$360,000.00
Fixed Costs	$295,525.00
Net Income	$94,475.00
Requirement 2
Contribution Margin per Unit in Dollars = Selling Price – Variable Costs
Selling Price	Variable Costs	Contribution Margin per Unit
$12.50	$6.00	$6.50
Contribution Margin Ratio = Contribution Margin/Selling Price
Contribution Margin	Selling Price	Contribution Margin Ratio
$6.50	$12.50	52%
Requirement 3
Break-Even Point = Fixed Costs / Contribution Margin
Fixed Costs	Contribution Margin	Break-Even Point in Units (Rounded)
$295,525	$6.50	45,465
Break-Even Point in Units X Selling Price per Unit = Break-Even Point Sales
Break-Even Point in Units	Selling Price per Unit	Break-Even Point in Sales (Rounded)
45,465	$12.50	$568,317
Requirement 4A
Margin of Safety in Units = Current Unit Sales – Break-Even Point in Unit Sales
Current Unit Sales	Break-Even Point in Sales	Margin of Safety in Units
60,000	45,465	14,534.62
Requirement 4B
Margin of Safety in Dollars = Current Sales in Dollars – Break-Even Point Sales in Dollars
Current Sales in Dollars	Break-Even Point in Dollars	Margin of Safety in Dollars
$750,000	$568,317	$181,683
Requirement 4C
Margin of Safety as a Percentage = Margin of Sales in Units / Current Unit Sales
Margin of Safety in Units	Current Unit Sales	Margin of Safety Percentage
14,535	60,000	24%
Requirement 5
Degree of Operating Leverage = Contribution Margin / Operating Income
Contribution Margin	Operating Income	Operating Leverage
$6.50	$94,475.00	0.0001
Requirement 6
Units	$ Per Unit	Totals
Sales	72,000	$12.50	$900,000
Variable Costs	72,000	$6.00	$432,000.00
Fixed Costs	$295,525.00
Net Income	$172,475.00
Operating Leverage	Times % Increase	Increase would be XX%
0.0001	$0.83	83%
Prior Income	$94,475.00	From Part 1
Increase	$78,000.00	Prior Income X XX% Above
Total	$16,475.00
Requirement 7
Targeted Income = (Fixed Costs + Target Income) / Contribution Margin
Fixed Costs + Target Income	Divided by Contribution Margin	# of Units (Rounded)
Fixed Costs	$295,525
Target Income	$120,000
Total	$415,525	$6.50	63,927
# of Units Above X $ Per Unit
Proof	Revenue	63,927*$12.50	$799,087
Variable Costs	63,927*$6.00	$383,562
Contribution Margin	$415,525
Fixed Costs	$295,525
Net Income	$120,000
Requirement 8
Sales Mix
Current	Specialty	Total
Expected Sales Units	60,000	5,000	65,000
Revenue = Sales X Price	$750,000	$55,000	$805,000
Variable Costs X Units	$360,000	$31,000	$391,000
Contribution Margin	$390,000	$24,000	$414,000
Fixed Costs	$310,525
Operating Income	$103,475
Prior Net Income From Requirement 1	$94,475.00
Additional Operating Income	(Operating Income Above Less Prior Income)	$9,000.00
Decision With Explanation	According to the calculations above, Hampshire should agree to sell the additional 5,00 umbrellas to the touring business as they will earn an additional operating income of $9,000.

Part II

Requirement 1
Hampshire Company
Variable Costing Income Statement
Units	$
Sales	60,000	$12.50	$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory	$0
Direct Materials	60,000	$3.00	$180,000.00
Direct Labor	60,000	$1.50	$90,000.00
Manufacturing Overhead	60,000	$0.40	$24,000.00
Total Variable Costs	$294,000.00
Cost of Good Available for Sale	$392,000.00
Deduct Ending Inventory	20,000	$4.90	$98,000.00
Variable Costs of Goods Sold	$294,000.00
Variable Selling Costs	60,000	$1.10	$66,000.00
Contribution Margin	$390,000.00
Fixed Costs:
Fixed Manufacturing Costs	$216,000
Fixed Administrative Costs	$79,525
Operating Income	$94,475.00
Requirement 2
Hampshire Company
Absorption Costing Income Statement
Units	$
Sales	60,000	$12.50	$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory	$0
Direct Materials	80,000	$3.00	$240,000.00
Direct Labor	80,000	$1.50	$120,000.00
Manufacturing Overhead	80,000	$0.40	$32,000.00
Total Variable Costs	$392,000.00
Allocated Fixed Manufacturing Costs	80,000	$2.70	$216,000.00
Cost of Good Available for Sale	$608,000.00
Deduct Ending Inventory	20,000	$7.60	$152,000.00
Costs of Goods Sold	$456,000.00
Gross Margin	$294,000.00
Fixed Costs:
Variable Selling Costs	60,000	$1.10	$66,000
Fixed Administrative Costs	$73,525
Operating Income	$154,475.00

Part III

Requirement 1
Price Variances:
(Actual Price – Standard Price) X Actual Quantity
Actual	Standard	Actual Quantity	Variance	Favorable or Unfavorable
Cloth	$1.25	$1.15	128,000	$12,800
Handle Assembly	$0.99	$1.05	80,808	-$4,848
Labor Price Variance	$7.62	$7.50	15,748	$1,890
Requirement 2
Efficiency Variances:
(Actual Quantity of Input Used – Standard Quantity of Input Allowed for Actual Output) X Budgeted Price of Input
Actual	Standard	Standard Price	Variance	Favorable or Unfavorable
Cloth	128,000	2	$1.15	$
(1.5 Yards per Unit)
Handle Assembly	80,808	1	$1.05	$
(1 per Unit)
Labor	15,748	0	$7.50	$
(.20 per Unit)

Part IV

Cost Information From Instructions
Stick	Collapsible
Units Sold	60,000	3,000
Selling Price	$12.50	$14.00
Direct Material Cost Per Unit	$3.00	$3.10
Direct Labor Cost Per Hour	$7.50	$8.00
Variable MO	$0.40	$0.40
Variable Selling Costs	$1.10	$1.10
Labor Hours Per Unit	0.2	0.2
Sales Orders	120	1
Purchase Orders	50	3
Production Runs	45	6
Material Moves	86	10
Machine Setups	130	6
Machine Hours	525	32
Inspections	200	10
Shipments	60	3
Activity Information from Instructions
Activity	Activity Cost	Activity Cost Driver
Order Processing	$35,000	Number of Sales Orders
Purchasing	$36,000	Number of Purchase Orders
Material Handing	$28,000	Material Moves
Machine Setup	$14,000	Machine Setups
Production	$99,000	Production Runs
Assembly	$80,000	Machine Hours
Inspecting	$11,000	Number of Inspections
Shipping	$7,500	Number of Shipments
Requirement 1
Activity	Total Costs	Quantity of Cost Allocation Base	Overhead Allocation Rate
Order Processing	$	X	$
Purchasing	$	X	$
Material Handing	$	X	$
Machine Setup	$	X	$
Production	$	X	$
Assembly	$	X	$
Inspecting	$	X	$
Shipping	$	X	$
Requirement 2
Traditional Costing
Stick Umbrella	Collapsible Umbrella	Total
Revenues	$	$	$
Direct Materials	$	$	$
Direct Labor	$	$	$
Variable Overhead	$	$	$
Variable Selling Costs	$	$	$
Allocated Fixed Overhead	$	$	$
Total Costs	$	$	$
Operating Income	$	$	$
Operating Income %	%	%
Per Unit Operating Income	$	$
Requirement 3
Activity-Based Costing
Stick Umbrella	Collapsible Umbrella	Total
Revenues	$	$	$
Direct Materials	$	$	$
Direct Labor	$	$	$
Variable Overhead	$	$	$
Variable Selling Costs	$	$	$
Order Processing Costs	$	$	$
Purchasing Costs	$	$	$
Material Handing Costs	$	$	$
Machine Setup Costs	$	$	$
Production Costs	$	$	$
Assembly Costs	$	$	$
Inspecting Costs	$	$	$
Shipping Costs	$	$	$
Total Costs	$	$	$
Operating Income	$	$	$
Operating Income %	%	%
Per Unit Operating Income	$	$
Requirement 4
Costs per Unit	Stick Umbrella	Collapsible Umbrella
Traditional	$	$
ABC	$	$
Difference	$	$
Requirement 5

1

2

3

4

5

6

7

8

A

B

Requirement 1

Price Variances:

(Actual Price – Standard Price) X Actual Quantity

Actual

Cloth

$1.25