CVP application—eliminate product from operations? Muscle Beach, Inc.,makes three models of high-performance weight-training benches. Current operating data are summarized here: MegaMuscle PowerGym ProForceSelling price per unit $ 170 $ 220 $ 310Contribution margin per unit 51 77 62Monthly sales volume—units 4,000 3,000 1,000Fixed expenses per month Total of $468,000 Required:a. Calculate the contribution margin ratio of each product.b. Calculate the firm’s overall contribution margin ratio.c. Calculate the firm’s monthly break-even point in sales dollars.d. Calculate the firm’s monthly operating income.e. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $420,000 per month. Assuming that this change would not affect the other models, would you recommend the elimination of the ProForce model? Explain your answer.f. Assume the same facts as in part e. Assume also that the sales volume for the PowerGym model will increase by 500 units per month if the ProForce model is eliminated. Would you recommend eliminating the ProForce model? Explainyour answer.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
CVP application—eliminate product from operations? Muscle Beach, Inc.,
makes three models of high-performance weight-training benches. Current operating data are summarized here: MegaMuscle PowerGym ProForce
Selling price per unit $ 170 $ 220 $ 310
Contribution margin per unit 51 77 62
Monthly sales volume—units 4,000 3,000 1,000
Fixed expenses per month Total of $468,000
Required:
a. Calculate the contribution margin ratio of each product.
b. Calculate the firm’s overall contribution margin ratio.
c. Calculate the firm’s monthly break-even point in sales dollars.
d. Calculate the firm’s monthly operating income.
e. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $420,000 per month. Assuming that this change would not affect the other models, would you recommend the elimination of the ProForce model? Explain your answer.
f. Assume the same facts as in part e. Assume also that the sales volume for the PowerGym model will increase by 500 units per month if the ProForce model is eliminated. Would you recommend eliminating the ProForce model? Explain
your answer.
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