Compute (1) the contribution margin and (2) the contribution margin ratio, and recompute (3) the break-even point in sales dollars. (Round contribution
Compute (1) the contribution margin and (2) the contribution margin ratio, and recompute (3) the break-even point in sales dollars. (Round contribution
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...
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![Pharoah Corporation has collected the following information after its first year
of sales. Sales were $1,350,000 on 90,000 units; selling expenses $225,000
(40% variable and 60% fixed); direct materials $459,900; direct labor $261,000;
administrative expenses $243,000 (20% variable and 80% fixed); and
manufacturing overhead $315,000 (70% variable and 30% fixed). Top
management has asked you to do a CVP analysis so that it can make plans for
the coming year. It has projected that unit sales will increase by 10% next year.
The company is considering a purchase of equipment that would reduce its
direct labor costs by $93,600 and would change its manufacturing overhead
costs to 30% variable and 70% fixed (assume total manufacturing overhead
cost is $315,000, as above). It is also considering switching to a pure
commission basis for its sales staff. This would change selling expenses to 90%
variable and 10% fixed (assume total selling expense is $225,000, as above).
Compute (1) the contribution margin and (2) the contribution margin ratio, and
recompute (3) the break-even point in sales dollars. (Round contribution
margin ratio to 2 decimal places, e.g. 0.25 and all other answersto O decimal
places, e.g. 2,520. Use the current year numbersfor calculations.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1d722e9e-a03b-4b00-b8b9-3e5d6f917bc2%2F0479a8b6-ed8c-4361-a585-cf86e41b0ffa%2Facgjte_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Pharoah Corporation has collected the following information after its first year
of sales. Sales were $1,350,000 on 90,000 units; selling expenses $225,000
(40% variable and 60% fixed); direct materials $459,900; direct labor $261,000;
administrative expenses $243,000 (20% variable and 80% fixed); and
manufacturing overhead $315,000 (70% variable and 30% fixed). Top
management has asked you to do a CVP analysis so that it can make plans for
the coming year. It has projected that unit sales will increase by 10% next year.
The company is considering a purchase of equipment that would reduce its
direct labor costs by $93,600 and would change its manufacturing overhead
costs to 30% variable and 70% fixed (assume total manufacturing overhead
cost is $315,000, as above). It is also considering switching to a pure
commission basis for its sales staff. This would change selling expenses to 90%
variable and 10% fixed (assume total selling expense is $225,000, as above).
Compute (1) the contribution margin and (2) the contribution margin ratio, and
recompute (3) the break-even point in sales dollars. (Round contribution
margin ratio to 2 decimal places, e.g. 0.25 and all other answersto O decimal
places, e.g. 2,520. Use the current year numbersfor calculations.)
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