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Semester Project

Income Statement Analysis of Regional Distribution, INC.

Date Submitted: 11/30/2012

Submitted by:

Jingwen Tang 103802116

Shiya Wang 103801968

Xinyue Zhang 103683797

Hongyang Xu 103667508

Mathew Nigel

Contents

I. Introduction……………………………………………………….2

II. Analysis…………………………………………………..……….2

a. Determine Regional Distribution’s break-even point in sales dollars…………...………………………………….…………..2

b. What dollar sales volume is required to earn an after-tax profit of $480,000? ……...…….………………………..…………….2

c. Assuming budgeted 2012 sales of $6,000,000, prepare a 2012 contribution income statement. ………………..………………3

d. Discuss the reliability of the calculations in requirements a-c, including the limitations of the CVP model and how they affect the reliability of the model. ………………………...…….……4

III. Conclusion ………………………………………….…….…………8

IV. Reference…………………………………………………………….9

I. Introduction:

This report deals with the cost estimation and CVP analysis of Regional Distribution, INC. Based on its income statement, four main sections will be considered in this report. We will first calculate the break-even point in sales dollars and then go on describing its target profit .The third part we will prepare a contribution income statement of 2012. Finally, some reliabilities and limitation of CVP will be discussed, and then we will draw some conclusions.

II. Analysis:

a. Determine Regional Distribution’s break-even point in sales dollars.

The break-even point in sales dollars is computed by dividing fixed costs by contribution margin ratio.

First, contribution margin ratio= (sales - variable cost) / sales. According to income statement of DRD, it’s VC = cost of goods sold + shipping + sales order processing + customer relations= 4,527,900 ($4.140,000 + $215,400 + $52,500 + $120,000) in 2010.

Second, the CMR is 0.18 (1 - $4,527,000/$5,520,000).

Third, fixed costs in 2010 is 330,000 ( $250,000 + $80,000).

Finally,...