Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 38

CVP Analysis—Missing Data

Durant Manufacturers has performed extensive studies on its costs and production and estimates the following annual costs based on 150,000 units (produced and sold):

	Total Annual Costs
	(150,000 units)
Direct material	$300,000
Direct labor	270,000
Manufacturing overhead	225,000
Selling, general, and administrative	150,000
Total	$945,000

Required

a. Compute Durant’s unit selling price that will yield a profit of $300,000, given sales of 150,000 units.

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b. Compute Durant’s dollar sales that will yield a projected 20 percent profit on sales, assuming variable costs per unit are 60 percent of the selling price per unit and fixed costs are $420,000.

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c. Management believes that a selling price of $8 per unit is reasonable given current market conditions. How many units must Durant sell to generate the revenues (dollar sales) determined in requirement (b)?

Step 1 of 9

CVP analysis: It is used to identify how much changes in volume and costs affect the operating income of the company and net income. It plays a very significant role in decision making in management and is a significant way of determining and describing the selling price and breakeven point. It consists managerial approaches to determining sales revenue, net profit and capacity of production.