Sharon Michaels, the division controller, is concerned regarding the performance at Waltham Motors Division for the month of May. The company lost a major customer contact during this time, and she needs the performance report analyzed. Sharon Michaels must report the information to the corporate headquarters of Marco Corporation. Waltham Motors is a subsidiary of Marco Corporation and was acquired in late 2003. This analysis is for the month of May 2004.
As part of my analysis I started with a review of the company’s account policies. I found that there were no changes in the accounting procedures since Waltham had been acquired. Performance reports were created monthly by the …show more content…
Every unit sold must contribute an amount of the sale for payment of fixed costs this is called the contribution margin. I took the contribution margin from the budgeted data which was $351,200. The contribution margin should be divided by the budgeted units expected to be produced in order to get the contribution margin per unit. The budget showed that 18,000 units were expected to be sold. Finally, fixed costs should be divided by the unit contribution margin to get the number of units that would have to be sold in order to breakeven. Breakeven Calculation:
Contribution Margin/Budgeted Units Expected to be produced = Contribution Margin for unit
Total Fixed Costs/Unit Contribution Margin
Waltham Motors will have to sell 13,327 units in order to breakeven based on the budget numbers. Exhibit 1 shows the breakeven point when total costs equal net revenues. The fixed costs do not change so it is shown as a constant line at $260,000. This analysis allows you