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:

  1. Contribution margin per unit
  2. Breakeven point in units
  3. 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.

  1. Determine the contribution margin per unit for each type of vase.
  2. Determine the contribution margin per machine hour for each type of vase.
  3. Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income.
  4. 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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