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Problems in CVP Set A
Problems in CVP Set A
Problem no: 1
Sales revenue for the coming year was initially forecast to equal
$1,200,000(that is, without implementing either of the above
options).
Instructions
Instructions
a. What should the company establish as the sales price per unit
if it sets a target of earning an operating income of $260,000
by producing and selling 50,000 units during the first year of
operations?
b. At the unit sales price computed in part a, how many units
must the company produce and sell to break even? (Assume
all units produced are sold)
c. What will be the margin of safety (in dollars) if the company
produces and sells 50,000 units at the sales price computed in
part a? Using the margin of safety, compute operating income
at 50,000 units.
d. Assume that the marketing manager thinks that the price of
this product must be no higher that $94 to ensure market
penetration. Will setting the sales price at $94 enable Thermal
Tent to breakeven, given the plans to manufacture and sell
50,000 units? Explain your answer.