# CVP Analysis Lawn Master Company

Question # 00003814 Posted By: neil2103 Updated on: 11/20/2013 11:28 PM Due on: 11/28/2013
Subject Accounting Topic Accounting Tutorials:
Question
CVP Analysis Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for 2010 as follows:

Sales

\$46,000,000

Operating expenses

Variable expenses
\$32,200,000

Fixed expenses
7,500,000

Total expenses

39,700,000

Operating Profit

\$ 6,300,000

Required

1. Determine the breakeven point in sales dollars.

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2. Determine the required sales in dollars to earn a before-tax profit of \$8,000,000.

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3. What is the breakeven point in sales dollars if the variable cost increases by 12 percent?

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Budget for a Merchandising Firm Kelly Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow:

• Sales are budgeted at \$220,000 for December and \$200,000 for January, terms 1/eom, n/60.

• Collections are expected to be 60 percent in the month of sale and 38 percent in the month fol­lowing the sale. Two percent of sales are expected to be uncollectible and recorded in an allow­ance account at the end of the month of sales. Bad debts expense is included as part of operating expenses.

• Gross margin is 25 percent of sales.

• All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale.

• Kelly desires to have 80 percent of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase.

• Other monthly operating expenses to be paid in cash total \$22,600.

• Annual depreciation is \$216,000, one-twelfth of which is reflected as part of monthly operating expenses.

Kelly Company’s statement of financial position at the close of business on November 30 follows:

KELLY COMPANY

Statement of Financial Position

November 30, 2010

Assets

Cash
\$ 22,000

Accounts receivable (net of \$4,000 allowance

for doubtful accounts)
76,000

Inventory
132,000

Property, plant, and equipment (net of

\$680,000 accumulated depreciation)
870,000

Total assets
\$1,100,000

Liabilities and Stockholders’ Equity

Accounts payable
\$ 162,000

Common stock
800,000

Retained earnings
138,000

Total liabilities and equity
\$1,100,000

Required

1. What is the total of budgeted cash collections for December?

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2. How much is the book value of accounts receivable at the end of December?

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3. How much is the income (loss) before income taxes for December?

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4. What is the projected balance in inventory on December 31, 2010?

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5. What are budgeted purchases for December?

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