Part A: Using CVP analysis to find breakeven points and target profit volumes
Mimi Incorporated has a targeted operating income of $518,000 for the upcoming year. The selling price of its single product is $40.50 each, while the variable cost per unit is $12.50. Fixed costs total $182,000.
Calculate the following:
- Contribution margin per unit
- Breakeven point in units
- Units to be sold to earn the targeted operating income
Part B: Factoring resource constraints into product mix decisions
Rose Incorporated manufactures two types of vases, small and large. The following per-unit data are available.
Small Vase Large Vase
Sale price $60 $100
Variable costs $35 $60
Machine hours required for 1 vase 1 2
Total fixed costs are $600,000, and Rose Incorporated can sell a maximum of 25,000 units of each type of vase annually. Machine hour capacity is 50,000 hours per year.
- Determine the contribution margin per unit for each type of vase.
- Determine the contribution margin per machine hour for each type of vase.
- Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income.
- What is the dollar amount of the maximum operating income as calculated in C above?
Part C: Deciding whether to discontinue a product, department, or store
The income statement for Germain Appliances is divided by its two product lines, Toasters and Microwaves, as follows:
If Germain Appliances can eliminate fixed costs of $34,000 and increase the sale of Toasters by 6300 units at a selling price of $30 per unit and a contribution margin of $12 per unit, then discontinuing the Microwaves should result in what difference in total operating income?
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