CVP ANALYISIS

The Graham Company manufactures a variety of chemical products. One

division makes reagents for laboratories. The following is a projection of the
division's income statement for the coming year.
Sales (110,000 units @ $25) $2,750,000
variable cost 1,925,000
fixed cost 495,000
INTRUCTION
1. Calculate the contribution margin per unit and calculate the break-
even point in units! Calculate the ratio of contribution margin and
break-even sales revenue!
2. The division manager decided to increase the advertising budget by
$40,000. This will increase sales revenue by $400,000. How much will
operating profit increase or decrease as a result of this action?
3. Assume that sales revenue exceeds the amount estimated on the
income statement by $315,000. Without preparing a new income
statement, what is the underestimation of profit?
4. Refers to the initial data. How many units must be sold to earn an
after-tax profit of $360,000? suppose the tax rate is 40%
5. Calculate the margin of safety based on the initial income statement!
6. Calculate operating leverage based on the initial income statement! If
sales revenue is 20% greater than expected, what is the percentage
increase in profit?