Chapter 5, Problem 5CD

Bill Johnson, sales manager, and Diane Buswell, controller, at Current Designs are beginning to analyze the cost considerations for one of the composite models of the kayak division. They have provided the following production and operational costs necessary to produce one composite kayak.

Bill and Diane have asked you to provide a cost-volume-profit analysis, to help them finalize the budget projections for the upcoming year. Bill has informed you that the selling price of the composite kayak will be $2,000.

Instructions

(a) Calculate variable costs per unit

(b) Determine the unit contribution margin.

(c) Using the unit contribution margin, determine the break-even point in units for this product line.

(d) Assume that Current Designs plans to cam $270,600 on this product line. Using the unit contribu­tion margin, calculate the number of units that need to be sold to achieve this goal.

(e) Based on the most recent sales forecast. Current Designs plans to sell 1.000 units of this model. Using your results from part (c), calculate the margin of safety and the margin of safety ratio.