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Supplement Homework CVP 4 ACCT 210

# Supplement Homework CVP 4 ACCT 210 - Chapter 4 Homework...

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Phillip A. Blanchard © 2008 Chapter  4 Homework  Supplement  A Lot of Slides A LOT OF EFFORT! Perhaps you might consider editing this file before printing  if you want to save ink and paper!!

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Phillip A. Blanchard © 2008 This problem provides a rather simplistic, straightforward, yet incredibly important exercise to familiarize us with manipulative CVP analysis. I believe there is but ONE APPROACH worth considering (or learning) for use in this case: 6:1 1. First, set up the Contribution Margin Income Statement Format as illustrated in my lectures. 2. Second, fill in the ‘given’ data. 3. Third, solve for the missing numbers. DO NOT TAKE PERCEIVED SHORTCUTS
Phillip A. Blanchard © 2008 Sales S \$5 X 30,000 = 150,000 \$ Variable Costs .6S \$3 X 30,000 = 90,000 \$ Contribution Margin .4S \$2 X 30,000 = 60,000 \$ Fixed Costs = 50,000 \$ Net Income = 10,000 \$ Contribution Margin Income Statement This information is ‘given’ in the problem 6:1 Initial Assumptions

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Phillip A. Blanchard © 2008 Sales S \$5 X 30,000 = 150,000 \$ Variable Costs .6S \$3 X 30,000 = 90,000 \$ Contribution Margin .4S \$2 X 30,000 = 60,000 \$ Fixed Costs = 50,000 \$ Net Income = 10,000 \$ Contribution Margin Income Statement Although the ratio information is NOT ‘given’ in the problem, it is easily deduced, and should be, before proceeding. 6:1 Initial Assumptions
Phillip A. Blanchard © 2008 Sales S \$5 X 34,500 = 172,500 \$ Variable Costs .6S \$3 X 34,500 = 103,500 \$ Contribution Margin .4S \$2 X 34,500 = 69,000 \$ Fixed Costs = 50,000 \$ Net Income = 19,000 \$ Contribution Margin Income Statement Part 1 asks to you to increase the unit volume assumption by 15%. Since other assumptions are unchanged, the Income Statement must be modified for the new sales volume. 6:1.1 New Assumptions

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Phillip A. Blanchard © 2008 Sales S \$5 X 34,500 = 172,500 \$ Variable Costs .6S \$3 X 34,500 = 103,500 \$ Contribution Margin .4S \$2 X 34,500 = 69,000 \$ Fixed Costs = 50,000 \$ Net Income = 19,000 \$ Contribution Margin Income Statement Notice the impact on the Total Column. Also notice that the ratios do not change here. (Why don’t the ratios change? Because the problem suggested only a unit volume change.) 6:1.1 Fixed Cost does not change New Assumptions
Phillip A. Blanchard © 2008 Sales S \$5 X 30,000 = 150,000 \$ Variable Costs .6S \$3 X 30,000 = 90,000 \$ Contribution Margin .4S \$2 X 30,000 = 60,000 \$ Fixed Costs = 50,000 \$ Net Income = 10,000 \$ Contribution Margin Income Statement First go back the initial assumptions: 6:1.2 Initial Assumptions

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Phillip A. Blanchard © 2008 Sales S \$4.50 X 36,000 = 162,000 \$ Variable Costs 2/3S \$3.00 X 36,000 = 108,000 \$ Contribution Margin 1/3S \$1.50 X 36,000 = 54,000 \$ Fixed Costs = 50,000 \$ Net Income = 4,000 \$ Contribution Margin Income Statement Now, make the appropriate assumptions changes: The selling Price per unit goes down by \$.50; and the Sales Volume (in units) increases 20%. Notice that everything (other than assumed Fixed Costs) changes! 6:1.2 New Assumptions
Phillip A. Blanchard © 2008 Sales S \$4.50 X 36,000 = 162,000 \$ Variable Costs 2/3S \$3.00 X 36,000 = 108,000 \$ Contribution Margin 1/3S \$1.50 X 36,000 = 54,000 \$ Fixed Costs = 50,000 \$ Net Income = 4,000 \$ Contribution Margin Income Statement Notice that the VC per unit is still \$3.00 . However the CM per unit absorbs the \$.50 drop in SP per unit. Notice too that the ratios change per unit AND in total dollars!

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Supplement Homework CVP 4 ACCT 210 - Chapter 4 Homework...

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