MADRIGAL COMPANY

Contribution Income Statement

For the Year ended December 31, 2006
Cost per Unit %
Sales (90,000 units x 40.00) 3,600,000.00 40.00 100%
Variable Costs:
Direct Materials 900,000.00
Direct Labor 900,000.00
Variable Factory Overhead 180,000.00
Sales Commissions 180,000.00
Shipping 45,000.00
Variable Admin. Expense 45,000.00 2,250,000.00 25.00 62.50%
Contribution Margin 1,350,000.00 15.00 37.50%
Fixed Costs:
Fixed Factory Overhead 800,000.00
Advertising, Salaries, etc. 400,000.00
Fixed Admin. Expenses 195,000.00 1,395,000.00 15.50
Net Loss (45,000.00) (0.50)
 MADRIGAL COMPANY
Contribution Income Statement
For the Year ended December 31, 2006
A. Cost per unit %
Sales 5,100,000.00 34.00 100%
Variable Costs:
Direct Materials 1,500,000.00
Direct Labor 1,500,000.00
Variable Factory Overhead 300,000.00
Sales Commissions 255,000.00
Shipping 75,000.00
Variable Admin. Expense 75,000.00 3,705,000.00 24.70 44.12%
Contribution Margin 1,395,000.00 9.30 55.88%
Fixed Costs:
Fixed Factory Overhead 800,000.00
Advertising, Salaries, etc. 400,000.00
Fixed Admin. Expenses 195,000.00 1,395,000.00
Net Profit / (Loss) -

A. 15% slash in the selling price

SP = 40 x 15% SP = 40 - 6
‘=6 ‘= 34

MADRIGAL COMPANY
Contribution Income Statement
For the Year ended December 31, 2006
A. Cost per unit %
Sales 6,750,000.00 50.00 100%
Variable Costs:
Direct Materials 1,350,000.00
Direct Labor 1,350,000.00
Variable Factory Overhead 270,000.00
Sales Commissions 675,000.00
Shipping 67,500.00
Variable Admin. Expense 67,500.00 3,780,000.00 28.00 43.34%
Contribution Margin 2,970,000.00 22.00 56.66%
Fixed Costs:
Fixed Factory Overhead 800,000.00
Advertising, Salaries, etc. 1,900,000.00
Fixed Admin. Expenses 195,000.00 2,895,000.00
Net Profit / (Loss) 75,000.00

Price Increase of 25% Unit Volume to increase by 50%

SP = 40 x 25% Units = 90000 x 50%
SP = 10 Units = 45000
SP = 40 + 10 Units = 90000 + 45000
SP = 50 Units = 135,000
3.) Breakeven Point in Units & Peso Sales

Fixed Cost 1,395,000.00 BEP in Units = 93,000

CM / Unit 15.00

Fixed Cost 1,395,000.00 BEP in Sales = 3,720,000.00

CM % 37.50%

Sales 3,720,000.00
Variable Cost 2,325,000.00
CM 1,395,000.00
Fixed Cost 1,395,000.00
Net Income -

4.) Desired Profit of 450,000 affter 40% Tax

Proof:
DP = 1,395,000 + 450,000 / 1-0.40 Sales 5,720,000.00
37.50% Variable Cost 4,325,000.00
DP = 1,395,000 + 750,000 CM 2,145,000.00
37.50% Fixed Expenses 1,395,000.00
Net Profit 750,000.00
DP = 2,145,000 Tax 300,000.00
37.50% Profit 450,000.00

DP = 5,720,000.00

5.) Profit is 15% of Sales

Sales = 1,395,000.00 Proof:
37.5% - 15%
Sales 6,200,000.00
1,395,000.00 Variable Cost 3,875,000.00
22.50% CM 2,325,000.00
Fixed Expenses 1,395,000.00
= 6,200,000.00 Net Profit 930,000.00

In Units = 6,200,000/40
155,000

6.) Mail order firm is willing to buy 60,000 units of product if the price is right
Proof:
Direct Materials 11.00 Sales 1,770,000.00
Direct Labor 11.00 Variable Cost 1,530,000.00
Variable FOH 3.00 CM 240,000.00
Admin. Expenses 0.50 Fixed Cost 240,000.00
Variable Cost/unit 25.50 Net Income -

60,000 x 25.50 = 1530000 + 240000 = 1770000

 1,770,000 / 60,000
Selling Price 29.50

7.) Advertising is increased; Target Profit is 5% of sales

Proof:
Sales = 130,000 units x 40
= 5,200,000 Sales 5,200,000.00
Target Profit percent 5% Variable Cost 3,250,000.00
Target Proft 260,000.00 CM 1,950,000.00
Fixed Cost 1,690,000.00
Net Income 260,000.00
Fixed Cost:
Fixed FOH 800,000.00
Selling Exp 400,000.00
Fixed Admin, Exp 195,000.00
1,395,000.00
Total Fixed Cost 1,690,000.00
Advertising Expense 295,000.00

8.) Target profit of 200,000; Changes in prices of DM, DL

Cost / Unit
Sales 40.00 Proof:
Direct Materials 12.50
Direct Labor 10.90 Sales 5,500,000.00
FOH 2.00 Variable Cost 3,905,000.00
Selling Exp. 2.50 CM 1,595,000.00
Admin. Expense 0.50 Fixed Cost 1,395,000.00
Net Income 200,000.00
CM/Unit 11.60
CM % 29%

= 1,395,000 + 200,000
29.00%
= 1,595,000.00
29.00%

Sales = 5,500,000.00
Selling Price / Unit 40.00

Units to Sell = 137,500.00