This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS NOTATION USED IN CHAPTER 3 SOLUTIONS SP: Selling price VCU: Variable cost per unit CMU: Contribution margin per unit FC: Fixed costs TOI: Target operating income 3-16 (10 min.) CVP computations. Variable Fixed Total Operating Contribution Contribution Revenues Costs Costs Costs Income Margin Margin % a. $2,000 $ 500 $ 300 $ 800 $1,200 $1,500 75.0% b. 2,000 1,500 300 1,800 200 500 25.0% c. 1,000 700 300 1,000 300 30.0% d. 1,500 900 300 1,200 300 600 40.0% 3-17 (1015 min.) CVP computations. 1a. Sales ($30 per unit 200,000 units) $6,000,000 Variable costs ($25 per unit 200,000 units) 5,000,000 Contribution margin $1,000,000 1b. Contribution margin (from above) $1,000,000 Fixed costs 800,000 Operating income $ 200,000 2a. Sales (from above) $6,000,000 Variable costs ($16 per unit 200,000 units) 3,200,000 Contribution margin $2,800,000 2b. Contribution margin $2,800,000 Fixed costs 2,400,000 Operating income $ 400,000 3. Operating income is expected to increase by $200,000 if Ms. Schoenens proposal is accepted. The management would consider other factors before making the final decision. It is likely that product quality would improve as a result of using state of the art equipment. Due to increased automation, probably many workers will have to be laid off. Patels management will have to consider the impact of such an action on employee morale. In addition, the proposal increases the companys fixed costs dramatically. This will increase the companys operating leverage and risk. 3-18 (3540 min.) CVP analysis, changing revenues and costs. 3-1 1a. SP = 8% $1,000 = $80 per ticket VCU = $35 per ticket CMU = $80 $35 = $45 per ticket FC = $22,000 a month Q = CMU FC = per ticket $45 $22,000 = 489 tickets (rounded up) 1b. Q = CMU TOI FC + = per ticket $45 $10,000 $22,000 + = per ticket $45 $32,000 = 712 tickets (rounded up) 2a. SP = $80 per ticket VCU = $29 per ticket CMU = $80 $29 = $51 per ticket FC = $22,000 a month Q = CMU FC = per ticket $51 $22,000 = 432 tickets (rounded up) 2b. Q = CMU TOI FC + = per ticket $51 $10,000 $22,000 + = per ticket $51 $32,000 = 628 tickets (rounded up) 3a. SP = $48 per ticket VCU = $29 per ticket CMU = $48 $29 = $19 per ticket FC = $22,000 a month Q = CMU FC = per ticket $19 $22,000 = 1,158 tickets (rounded up) 3-2 3b. Q = CMU TOI FC + = per ticket $19 $10,000 $22,000 + = per ticket $19 $32,000 = 1,685 tickets (rounded up) The reduced commission sizably increases the breakeven point and the number of tickets required to yield a target operating income of $10,000: 8% Commission Fixed (Requirement 2) Commission of $48 Breakeven point 432 1,158 Attain OI of $10,000 628 1,685 4a. The $5 delivery fee can be treated as either an extra source of revenue (as done below) or as a cost offset. Either approach increases CMU $5: SP = $53 ($48 + $5) per ticket VCU = $29 per ticket CMU = $53 $29 = $24 per ticket FC = $22,000 a month Q = CMU FC = per ticket $24... View Full Document

End of Preview

Sign up now to access the rest of the document