1. Explain the importance of CM and how it can be used by companies to predict future income. Create some examples with numbers to show how it can be used(this area could be completed in excel).
2. Prepare three Cost Volume Profit(CVP) Income Statements using the following yearly volumes: 200, 800 and 1,400. Keep in mind how variable and fixed costs behave. The traditional income statement from #5 should be about the same net income as the 800 units for the CVP format.
Calculate Break-even in units and sales $ for the company
Calculate units and sales $ if the company wants a profit of $2,000,000.
Margin of safety for 800 units.
Discuss the importance of these calculations to a company. Fully discuss the differences(at least 3) between the traditional vs CVP format. Give examples supported by numbers of how you would use these calculations as the CFO of the company.
3. If the following changes were to be made, calculate a new CVP Income Statement: Direct Material costs decrease by 10%; fixed costs increase by 30% and sales price would increase by 5%. Assume you are selling the 800 units. Should the company consider these changes?
Why or why not? What if the sales volume changes? Does this change your answer? Discuss real examples of cost increases for fixed costs (at least 2) and decreases for direct materials (at least 2) that could be implemented for this business. Can the company increase price? What other areas might be impacted due to the price increase? You are the CFO of this business what is important to consider? Give 2 industry specific details that can impact this discussion.