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Huber Corporation 250000

Price: $2.50


Huber Corporation has collected the following information after its first year
of sales. Sales were $1,000,000 on 40,000 units; selling expenses $200,000 (30% variable
and 70% fixed); direct materials $327,000; direct labor $190,000; administrative
expenses $250,000 (30% variable and 70% fixed); manufacturing overhead $240,000
(20% variable and 80% 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 20% next year.

Instructions
(a) Compute (1) the contribution margin for the current year and the projected year, and
(2) the fixed costs for the current year. (Assume that fixed costs will remain the same
in the projected year.)
(b) Compute the break-even point in units and sales dollars for the current year.
(c) The company has a target net income of $120,000. 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?
(e) The company is considering a purchase of equipment that would reduce its direct
labor costs by $90,000 and would change its manufacturing overhead costs to 10%
variable and 90% fixed (assume total manufacturing overhead cost is $240,000, as
above). It is also considering switching to a pure commission basis for its sales staff.
This would change selling expenses to 80% variable and 20% fixed (assume total selling
expense is $200,000, as above). Compute (1) the contribution margin and (2) the
contribution margin ratio, and (3) recompute the break-even point in sales dollars.
Comment on the effect each of management’s proposed changes has on the break-even
point.

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