TCO 1 George Corporation Has Estimated Monthly Sales Of 3

1 Tco 1 George Corporation Has An Estimated Monthly Sales Of 3200

George Corporation has an estimated monthly sales of 3,200 units at a price of $70 per unit. Variable costs include manufacturing costs of $36 per unit and distribution costs of $14 per unit. Fixed costs total $40,000 per month. The assignment involves calculating the unit contribution margin, monthly break-even unit sales volume, and creating a contribution margin-based income statement based on these figures.

Paper For Above instruction

Introduction

Financial analysis is a foundational aspect of managerial accounting that aids in understanding a company's profitability and cost structure. For George Corporation, analyzing its contribution margin and break-even point provides critical insights into operational efficiency and financial sustainability. This report addresses the calculation of the unit contribution margin, the monthly break-even sales volume in units, and the formulation of a contribution margin income statement, all based on provided sales, cost, and fixed expense data.

Calculation of Unit Contribution Margin

The contribution margin per unit is calculated as the selling price per unit minus total variable costs per unit. Given the sales price of $70, manufacturing costs of $36, and distribution costs of $14, the total variable cost per unit comprises manufacturing and distribution costs: $36 + $14 = $50. Therefore, the contribution margin per unit is $70 - $50 = $20.

Calculation of Monthly Break-Even Unit Sales Volume

The break-even point in units is the level of sales at which total contribution margin equals total fixed costs. It is calculated as fixed costs divided by contribution margin per unit. Using the fixed costs of $40,000 and a contribution margin of $20 per unit, the break-even volume is $40,000 / $20 = 2,000 units. At this sales volume, the company's contribution margin fully covers fixed expenses, and net income is zero.

Contribution Margin Income Statement

Constructing a contribution margin income statement involves listing sales revenue, variable costs, contribution margin, fixed costs, and net income.

  • Sales Revenue: 3,200 units × $70 = $224,000
  • Variable Costs: 3,200 units × $50 = $160,000
  • Contribution Margin: $224,000 - $160,000 = $64,000
  • Fixed Expenses: $40,000
  • Net Income: $64,000 - $40,000 = $24,000

This income statement highlights that, beyond covering variable costs, the company generates a contribution margin of $64,000, which exceeds fixed costs by $24,000, indicating a profitable operation at the estimated sales volume.

Conclusion

The analysis underscores the significance of contribution margin and break-even calculations in strategic decision-making. By understanding the contribution margin per unit and the break-even point, George Corporation can assess its sales targets, pricing strategies, and cost management efforts. The contribution margin income statement further illuminates the company's profitability, serving as a vital tool for ongoing financial analysis and planning.

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