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CVP Analysis_Management Accounting
Typology: Exercises
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Required: Sales - VC - FC = 20% sales Sales 60, x - 0.4x - 24,0000 = 0.2 x Variable Cost 24, 0.4x = 24,000 Contribution Margin 36, x = 60,000 Fixed Cost 24, Sales = 60,000 Operating Income 12, Sales - VC - FC = 20% sales Sales 60, 10x - 40%(10x) - 24,000 = 20%(10x) Variable Cost 24, 10x - 4x - 24,000 = 2x Contribution Margin 36, 4x = 24,000 Fixed Cost 24, x = 6,000 Operating Income 12, Sales - VC - FC = 25% sales Sales 96, 10x - 40%(10x) - 24,000 = 25%(10x) Variable Cost 38, 10x - 4x - 24,000 = 2.5x Contribution Margin 57, 3.5x = 24,000 Fixed Cost 24, x = 9,600 Operating Income 33, Profit after tax = 20% sales Tax rate = 40% Operating Income = PAT x 100 1 - tax = 0.2 sales x 100 60 = 0.3 sales Sales - VC - FC = 0.3 sales Sales 80, x - 0.4x - 24,000 = 0.3x Variable Cost 32, Tom Flannery has developed a new recipe for fried chicken and plans to open a take-out restaurant in Oklahoma City. His father-in-law has agreed to invest $500,000 in the operation provided Tom can convince him that profits will be at least 20 percent of sales revenues. Tom estimated that total fixed expenses would be $24,000 per year and that variable expenses would be approximately 40 percent of sales revenue.
**1. How much sales revenue must be earned to produce profits equal to 20 percent of sales revenue? Prepare a contribution income statement to verify your answer.