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San Jose Motor

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San Jose Motors
San Jose Motors is a small company that produces motors for specialized equipment sold primarily to research laboratories and a major U.S. defense contractor. The operation is family owned and has been in business for 15 years. The company produces and sells three motors, named Motor 5, Motor 10, and Motor 15.

Bob Noonan was recently hired as an accountant and reports to the controller, Jennifer Mackey. Bob has been performing routine types of accounting work, but he would like to become more involved in cost control and in analyses to help the managers make decisions. Recently, he performed a cost-volume-profit analysis of the company’s three products, as shown below. The analysis was based on data from last year’s accounting records.

Prior Year Data Aggregate Motor 15 Motor 10 Motor 5
Sales at capacity (units) 300,000
Actual volume (units) 250,000 120,000 80,000 50,000
Price per unit $113.60 $140.00 $120.00 $40.00
Total revenue $28,400,000 $16,800,000 $9,600,000 $2,000,000
Variable cost per unit $85.60 $125.00 $62.50 $28.00
Total variable cost $21,400,000 $15,000,000 $5,000,000 $1,400,000
Fixed costs $6,000,000 $900,000 $4,500,000 $600,000
Operating profit $1,000,000 $900,000 $100,000 $0
Ratios:
Variable cost to sales 75.352% 89.286% 52.083% 70.000%
Contribution margin ratio 24.648% 10.714% 47.917% 30.000%
Utilization of capacity 83.333% 40.000% 26.667% 16.667%
Breakeven point:
Units 214,286
Revenues $24,342,857

Bob asked Jennifer for an opportunity to present his CVP analysis at the next weekly managers’ meeting. Jennifer had used CVP in the past, but had not formally presented it to the managers. She asked Bob if he had updated the prior year’s information for expected changes. Bob said he had thought about doing that, but did not know where to get that kind of information. Jennifer

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