Case#4: CVP Analysis Problem

The Little Jewelry Box Company makes and sells jewelry boxes
to various retailers. Please note the following information.
Projected Sales (Units per Month)
Average Sale Price per Unit
Average Variable Cost per Unit
Fixed Operating Costs per Month:
Administrative salaries and wages
Marketing/Advertising costs

$
$

14,000
70
50

$
$

80,000
40,000

a. Compute the total of Fixed Costs.

Administrative salaries and wages
Marketing/Advertising costs
Total Fixed Cost

$
$
$

80,000
40,000
120,000

b. Compute the contribution margin per unit.

Average Sale Price per Unit
Average Variable Cost per Unit
Contribution Margin per unit

$
$
$

70
50
20

Using the above information, determine the following:

c. Compute the contribution margin percentage (CMR).

Contribution Margin per unit
Average Sale Price per Unit
Contribution Margin percentage (CMR)

$
$

20
70
28.57%

$
$
$
$
$

980,000
(700,000)
280,000
(120,000)
160,000

$
$

120,000
20

d. Prepare a budgeted CM Income Statement for the first

month of the year based upon projected unit sales.
Sale revenue
Less: Variable Cost
Contribution Margin
Less: Fixed Expenses
Net Income
e. Compute the Break Even number of units.
Total Fixed Expenses
Contribution Margin per unit

Breakeven point (units) = Total Fixed Expenses / CM per unit

Breakeven Point (unit)

6,000

f. Compute the Break Even sales (in dollars) (also compute

using CMR).
Total Fixed Expenses
Contribution Margin Ratio (CRM)

120,000
28.57%

Breakeven point (units) = Total Fixed Expenses / CM Ratio

Breakeven Point (sales)

$420,000

g. If Targeted Operating Income were $80,000, how many units

would need to be sold.
Total Fixed Expenses
Targeted operating income
Contribution Margin per unit

$
$
$

120,000
80,000
20

Breakeven point (units) = (Total Fixed Expenses + Targeted operating income) / CM per unit
Breakeven Point (unit)

10,000

h. Prepare a CM Income Statement if projected unit sales were

10% greater than the current budget.
Sale revenue
Less: Variable Cost
Contribution Margin
Less: Fixed Expenses
Net Income

$ 1,078,000
$ (770,000)
$
308,000
$ (120,000)
$ 188,000

i. If the current sales price of the jewelry box needs to be

decreased by 5% to increase sales, calculate the CM, OI, and
the number of BE units that need to be sold.
(Use the same number of units found in question "h")
New Sale price per unit
Less: Average Variable Cost per Unit
New CM

$
$
$

66.50
50.00
16.50

New OI

134,100

New Breakeven Point (units)

7,273

j. If advertising costs must be increased by $5,000 to effect

the 10% increase in unit sales, determine the revised BE units
and BE sales in dollars.
(Use the same number of units found in question "h")
New Fixed Cost
Contribution Margin per unit
Contribution Margin Ratio

$
$

Revised BE sale units

Revised BE sale (dollars)

125,000
20
28.57%
6,250
$437,500

k. Prior to decreasing the sales price and increasing ad costs,

the company noted VC would increase by 5%. Using the
original sales price and FC, calculate the new CM, CMR,
revised OI, BE units, and BE sales.
Average Sale Price per Unit
Less: New Variable Cost per unit
New CM Per unit

$
$
$

New CMR
Revised OI
BE Units
BE Sales

70.00
(52.50)
17.50
25.00%

125,000

6,857
480,000

) / CM per unit