CVP Analysis; Profit Planning Horton Manufacturing Inc. (HMI) is suffering from the effectsof increased local and global competition for its main product, a lawn mower that is sold in discountstores throughout the United States. The following table shows the results of HMI’s operations for2019:Sales (12,500 units @ $84) $1,050,000 Variable costs (12,500 @ $63) 787,500Contribution margin $ 262,500 Fixed costs 296,100Operating profit (loss) ($ 33,600)Required1. Compute HMI’s breakeven point in both units and dollars. Also, compute the contribution margin ratio.(Round the number of units up to the next whole number.)2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? (Roundthe number of units up to the next whole number)3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars,to generate an after-tax profit of $30,000? (Round the number of units up to the next whole number.)4. Prepare a contribution income statement as a check for your calculations in requirement 3.5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000increase in annual sales. If the manager is right, what will be the effect on the company’s operatingprofit or loss?6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price incombination with a $40,000 increase in advertising will cause unit sales to increases by 25%. Whateffect would this strategy have on operating profit (loss)?7. Refer to the original data. During the year, HMI saved $5 of unit variable cost per lawn mower by buying from a different manufacturer. However, changing the plant machinery to accommodate the newpart means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?
CVP Analysis; Profit Planning Horton Manufacturing Inc. (HMI) is suffering from the effects
of increased local and global competition for its main product, a lawn mower that is sold in discount
stores throughout the United States. The following table shows the results of HMI’s operations for
2019:
Sales (12,500 units @ $84) $1,050,000
Variable costs (12,500 @ $63) 787,500
Contribution margin $ 262,500
Fixed costs 296,100
Operating
Required
1. Compute HMI’s breakeven point in both units and dollars. Also, compute the contribution margin ratio.
(Round the number of units up to the next whole number.)
2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? (Round
the number of units up to the next whole number)
3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars,
to generate an after-tax profit of $30,000? (Round the number of units up to the next whole number.)
4. Prepare a contribution income statement as a check for your calculations in requirement 3.
5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000
increase in annual sales. If the manager is right, what will be the effect on the company’s operating
profit or loss?
6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in
combination with a $40,000 increase in advertising will cause unit sales to increases by 25%. What
effect would this strategy have on operating profit (loss)?
7. Refer to the original data. During the year, HMI saved $5 of unit variable cost per lawn mower by buying from a different manufacturer. However, changing the plant machinery to accommodate the new
part means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?
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