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306 3 soln

# 306 3 soln - Solutions Ch 3 3-16(10 min CVP computations...

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Solutions – Ch 3 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 0 300 30.0% d. 1,500 900 300 1,200 300 600 40.0% 3-17 (10–15 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. Schoenen’s 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. Patel’s management will have to consider the impact of such an action on employee morale. In addition, the proposal increases the company’s fixed costs dramatically. This will increase the company’s operating leverage and risk. 3-20 (20 min.) CVP exercises. 1a. [Units sold (Selling price – Variable costs)] – Fixed costs = Operating income [5,000,000 (\$0.50 – \$0.30)] – \$900,000 = \$100,000 1b. Fixed costs ÷ Contribution margin per unit = Breakeven units \$900,000 ÷ [(\$0.50 – \$0.30)] = 4,500,000 units Breakeven units × Selling price = Breakeven revenues 4,500,000 units × \$0.50 per unit = \$2,250,000 or,

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Contribution margin ratio = price Selling costs Variable price Selling - = \$0.50 \$0.30 - \$0.50 = 0.40 Fixed costs ÷ Contribution margin ratio = Breakeven revenues \$900,000 ÷ 0.40 = \$2,250,000 2. 5,000,000 (\$0.50 – \$0.34) – \$900,000 = \$ (100,000) 3. [5,000,000 (1.1) (\$0.50 – \$0.30)] – [\$900,000 (1.1)] = \$ 110,000 4. [5,000,000 (1.4) (\$0.40 – \$0.27)] – [\$900,000 (0.8)] = \$ 190,000 5. \$900,000 (1.1) ÷ (\$0.50 – \$0.30) = 4,950,000 units 6. (\$900,000 + \$20,000) ÷ (\$0.55 – \$0.30) = 3,680,000 units 3-24 (10 min.) CVP analysis, margin of safety. 1. Breakeven point revenues = percentage margin on Contributi costs Fixed Contribution margin percentage = \$600,000 \$1,500,000 = 0.40 or 40% 2. Contribution margin percentage = price Selling unit per cost Variable price Selling - 0.40 = SP \$15 SP - 0.40 SP = SP – \$15 0.60 SP = \$15 SP = \$25 3. Breakeven sales in units = Revenues ÷ Selling price = \$1,500,000 ÷ \$25 = 60,000 units
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306 3 soln - Solutions Ch 3 3-16(10 min CVP computations...

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