GIVEN: CVP Company manufactures and sells Product V. As part of the budgeting process,
management made the following estimates for 2016 related to the production and sale of 10,000
units of Product V. CVP Company maintains near zero inventory levels at year-end so the total of all
production costs approximates cost of goods sold. Product V sells for $100 per unit.
Estimated Estimated Fixed Costs Variable Costs Production Costs:
Direct Materials $120,000 Direct Labor $180,000 Factory Overhead $95,000 $30,000 Salaries & Commissions $90,000 $40,800 Advertising $60,000 Miscellaneous selling & administrative $35,000 $19,200 $280,000 $390,000 Selling & Administrative Costs: REQUIRED: (Show supporting calculations.)
Part 1: Prepare an estimated product income statement for 2016 using the contribution margin
Part 2: Determine the expected contribution margin per unit and the contribution margin ratio.
Part 3: Determine the breakeven point in units and dollars.
Part 4: Determine the expected margin of safety in dollars, units, and as a percentage of sales.
Part 5: Determine the degree of operating leverage.
Part 6: Construct a cost-volume-profit graph for the range of 0 units to 10,000 units. Label the
axes, lines and breakeven point.