UCF-ACG2071 Ch. 7 Cost, Volume, Profit

UCF-ACG2071 Ch. 7 Cost, Volume, Profit -...

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IN CLASS EXAMPLES – CH 7 COST VOLUME PROFIT EXAMPLES    EXAMPLE #1 – Basic CVP Problems 1.  If ABC Appliance Company’s sales price per house call is $100, variable costs per call are $60, and fixed costs for the year are $200,000.   How many house calls must the company make to break even? SP $100 VC $60 CM $40 $200,000/$40 = 5000 BEP units 2.  If the Chickens-r-Us company has variable costs of $2 per unit, fixed costs of $3,000 per month, and sells its product for $5, how many  units must it sell to earn a profit of $6,000 in a month? SP $5 VC $2 CM $3 ($3000 + $6000)/$3 = $9000/3 = 3000 units 3. The Waldron Company produces a single product for sale.  Based on current accounting records, the company’s unit sales price is $20, unit  variable expense is $12 and monthly fixed costs are $49,600 a. Compute the monthly break-even points in units Fixed costs/CMu = $49600/8 = 6200 units SP  $20 VC  $12 CM$8 b. Assume it is estimated that monthly fixed costs will increase by 10 percent.  Compute the monthly break-even point in units. $49600 x 1.1 = $54560/8 = 6820 units c. Returning to the original data, assume that variable costs decrease by 5 percent.    Compute the monthly break-even point in units. SP  $20 VC$11.40 CM $8.60 $49600/$8.60=5767units d. Using the original data, assume that the unit sales price increased by 15 percent. SP 20 x 1.15 = $23 Sp  $23 VC $12 CM$11 $49600/$11=4509 units e. Using the original data, assume that during October the company sold 10,000 units.  Calculate total sales revenue and the before- tax income for October. SP $20 x 10,000 = $200,000 OI = Sales – VC – FC OI = $200,000 – ($12x10000) – $49600 OI = $30400 4.  If Mandolin Company’s selling price is $12 per unit, variable cost is $3.00 per unit, and fixed costs are $36,000.  If fixed costs increased by  $3,000 how many additional fishing rods must be sold to break even?
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SP $12 VC $3 CM $9 $3000/9 = 334 units more 5. Zeke Company sells a single product.  The selling price per unit is $32 and unit variable cost is $24.  Fixed costs for the year are $100,200.  a.  What is the contribution margin ratio? $32-$24 = $8 $8/32 = 25% b.  If 15,000 units are sold, what is operating income? ($8 x 15,000)-$100,200 = $19800 c.  What is the breakeven point for Zeke Company in units? 100,200/8 = 12525 d.  What is the breakeven point for Zeke Company in dollars? 12525 x 32 = 400,800 e.  What is unit contribution margin?  $8 f. If unit sales price increases by $3.00, will breakeven point increase or decrease?(all other data remains the same) $35-24 = 11 CM per unit   100,200/11 = 9110 units  decrease g. If fixed costs decrease by $30,000, will breakeven point increase or decrease? (use the original information given in the problem) 70200/8 = 8775 decrease h. If ABC wants to earn $50,000 profit, how many units must they sell?
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