E22.

15

Selling price per unit = $ 80

Net income = Revenue – VC – FC = 400.00 – 240.000 – 90.000 = $ 70.000

Sales = VC + FC + Net income = $ 184.000

1. Selling price increase 10% => New selling price per unit = 88
 New net income = New revenue – VC – FC = 88 x 5.000 – 240.000 – 90.000 = 110.000

2. Reduce VC to 55% of sales => New VC = $ 101.200

 New net income = 400.00 – 101.200 – 90.000 = $ 208.800

Reducing VC to 55% of sales creates a higher net income compared to increasing selling price for 10%.
Therefore, the managers should conduct the second actions.

E22. 17

a. Contribution margin per unit = unit selling price – VC per unit = 40 – 24 = $ 16

Contribution margin ratio = Contribution margin per unit : unit selling price = 16 : 40 = 40%

b. Break even pint in dollars = FC : Contribution margin ratio = 19.500 : 40% = $ 48.750
Break even point in units = FC : Contribution margin per unit = 19.500 : 16 = 1.219

c. Margin of safety in dollars = Actual sales – Break even sales = 2.500 – 1.219 = 1.281
Margin of safety in ratio = Margin of safety in dollars : Actual sales = 1.281 : 2.500 = 51%

d. The Total sales value = Number of units sold × selling price per unit = 2,950 × 40 = $ 118,000
Now in the case when the contribution margin increases by 30, so ultimately the sales is also
increased by 30%
So, the increase in sales = $118,000 × 30% = $35,400

P22.3A

a. 50 cents/bottle => Unit selling price = $ 0,5 => Sales in unit = 3.600.000 bottles
Jorge Company
CVP Income statement
For the year 2020
Total
Sales $ 1.800.000
Variable costs
Direct materials 430.000
Direct labor 360.000
 Manufacturing overhead – variable 380.000
Selling expenses – variable 70.000
Administrative expenses – variable 20.000
Total variable expenses $ 1.260.000
Contribution margin $540.000
Fixed cost
Manufacturing overhead – fixed 280.000
Selling expenses – fixed 65.000
Administrative expenses – fixed 60.000
Total fixed costs $ 405.000
Net income $ 135.000

b. Unit variable cost = 0.35

Contribution margin per unit = 0.15
(1) Break even point in units = 2.700.000
Contribution margin ratio = 30%
(2) Break even point in dollar = 1.350.000

c. Margin of safety in dollars = 450.000

Margin of safety ratio = 25%

d. Required sales in dollars = 1.950.000