ASSIGNMENT WEEK FOR CLASS OF WEDNESDAY 8TH AND THURSDAY 9TH

CVP Analysis Project

Established in 1963 in Datura, Italy, Datura, Ltd., is an international importer-exporter of pottery
with distribution centers in the United States, Europe, and Australia. The company was very
successful in its early years, but since then, its profitability has steadily declined. As a member of
a management team, you will gather information for Daturas next strategic planning meeting,
and you have been asked to review its most recent contribution income statement, which appears
below.
Datura, Ltd.
Contribution Income Statement
For the Year Ended December 31, 2004
Sales Revenue 13,500,000
Less Variable Cost
Purchases 6,000,000
Distribution 2,115,000
Sales Commissions 1,410,000
Total Variable Costs 9,525,000
Contribution Margin 3,975,000
Less Fixed Cost
Distribution 985,000
Selling 1,184,000
General and Administrative 871,875
Total Fixed Cost 3,040,875
Operating Income 934,000
In 2004, Datura sold 15,000 sets of pottery.
Complete Part 1:

1. For each set of pottery sold in 2004, calculate the (a) selling price, (b) variable purchases cost,
(c) variable distribution cost, (d) variable sales commission, and (e) contribution margin.
2. Calculate the breakeven point in units and in sales euros.
3. Historically, Daturas variable costs have been about 60 percent of sales. What was the ratio of
variable cost to sales in 2004? List three actions Datura could take to correct the difference.
4. How would fixed costs have been affected if Datura had sold only 14,000 sets of pottery in
2004?
After you have completed part 1 above, read the following and complete part 2.
In January 2005, Sophia Callas, the president and chief executive officer of Datura, Ltd.,
conducted a strategic planning meeting. During the meeting, Phillipe Mazzeo, vice president of
distribution, noted that because of a new contract with an international shipping line, the
companys fixed distribution cost for 2005 would be reduced by 10 percent and its variable
distribution costs by 4 percent. Gino Roma, vice president of sales, offered the following
information:
We plan to sell 15,000 sets of pottery again in 2005, but based on review of the competition, we
are going to lower the selling price to 890 per set. To encourage increased sales, we will raise
sales commissions to 12 percent of the selling price.
Sophia Callas is concerned that the changes described by Roma and Mazzeo may not improve
operating income sufficiently in 2005. If operating income does not increase by at least 10
percent, she will want to find other ways to reduce the companys costs. She asks you to evaluate
the situation in a short professional report. Because it is already January of 2005 and changes
need to be made quickly, she requests your report as soon as possible
Complete Part 2:
1. Prepare a budgeted contribution income statement for 2005. Your report should show the
budgeted (estimated) operating income based on the information provided above and in part 1.
Will the changes improve operating income sufficiently? Explain
2. In preparation for writing your report, answer the following questions:
a. Why are you preparing the report?
b. Who needs the report?

c. What sources of information will you use?

d. When is the report due?
Please submit your responses, to both sections, in a professional manner.
(See the General Instructions document, in Moodle, for more details).
Everything should be typed professionally.
I highly encourage you to utilize Microsoft Excel (Spreadsheets)!
You may also utilize Microsoft Word.
Research Project
Make sure the written report (the essay) of your project is at least 4-pages in length not including
the cover page, reference page, graphs, or any other appendices/schedules.
Below is a list of items that you will need to incorporate into your mass manufacturing business.
You are to create a manufacturing plant with 2 separate divisions. Each division will make one
type of product (i.e. Textbooks and Pens or Shoes and Purses). You will prepare a professional
written report and include three different budgets. You may also include a graph which will
examine the business just before the opening day.
As the CEO, you need to consider and research most of the items (especially the bolded ones):
1. What is (are) the equipment(s) needed in order to start the operation (make sure to
include prices of the equipment(s)?
2. What types of products will be sold?
3. How many process systems will it take to make these items?
4. What type of management (centralized or decentralized)?
5. How much will your products sell for?
6. How are you going to set your Selling Price? (Market/Cost?)
7. How much will each factory worker be paid? (Provide a general annual wages).

8. How many hours per day will you open and how many days per week?
9. List and express in dollars your factory estimated variable, fixed and mixed costs when
applicable.
10. What is included in administration and selling expenses?
11. Calculate the Break Even Point in Unit and in Dollar.
12. Determine the companys PROFIT MARGIN
13. Prepare a budgeted income statement or a simple income statement.
14. Provide a Works Cited page for your three sources.