Problem
Lorge Corporation has collected the following information after its first year of sales. Sales were $2,339,200 on 146,200 units; selling expenses $350,880 (40% variable and 60% fixed); direct materials $747,082; direct labor $416,670; administrative expenses $409,360 (20% variable and 80% fixed); manufacturing overhead $526,320 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.
(a) Compute the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year
(b) Compute the break-even point in units and sales dollars for the first year.
(c) The company has a target net income of $453,220. What is the required sales in dollars for the company to meet its target?
(d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?