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# ch06 - Exercises Set B 1 EXERCISES SET B E6-1B The Santa...

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Exercises: Set B 1 EXERCISES: SET B E6-1B The Santa Cruz Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at \$50 a night. Operating costs are as follows. Salaries \$10,000 per month Utilities 2,000 per month Depreciation 1,000 per month Maintenance 500 per month Maid service 5 per room Other costs 30 per room Instructions (a) Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars. (b) If the inn plans on renting an average of 40 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety in dollars and (2) the margin of safety ratio? E6-2B In the month of June, Valerie’s Beauty Salon gave 2,700 haircuts, shampoos, and per- manents at an average price of \$30. During the month, fixed costs were \$26,000 and variable costs were 60% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units. (c) Compute the margin of safety in dollars and as a ratio. E6-3B Costa Company reports the following operating results for the month of August: Sales \$300,000 (units 5,000); variable costs \$210,000; and fixed costs \$70,000. Management is consider- ing the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs. 2. Reduce variable costs to 65% of sales. 3. Reduce fixed costs by \$10,000. Instructions Compute the net income to be earned under each alternative. Which course of action will pro- duce the highest net income? E6-4B Puddle-Jumper Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Puddle-Jumper’s base airport to the major city in the state, Metropolis. Each month 40 round-trip flights are made. Shown below is a recent month’s activity in the form of a cost-volume-profit income statement. Compute contribution margin, break-even point, and margin of safety. (SO 2) Compute net income under different alternatives. (SO 2) Compute break-even point and margin of safety. (SO 2) Fare revenues (300 fares) \$48,000 Variable costs Fuel \$17,000 Snacks and drinks 1,400 Landing fees 2,000 Supplies and forms 1,200 21,600 Contribution margin 26,400 Fixed costs Depreciation 3,000 Salaries 15,000 Advertising 2,250 Airport hanger fees 1,750 22,000 Net income \$ 4,400 Instructions (a) Calculate the break-even point in (1) dollars and (2) number of fares. (b) Without calculations, determine the contribution margin at the break-even point. (c) If fares were decreased by 10%, an additional 75 fares could be generated. However, total variable costs would increase by 25%. Should the fare decrease be adopted? Compute break-even point and prepare CVP income statement. (SO 2)

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E6-5B Koufax Company had sales in 2008 of \$1,500,000 on 60,000 units.Variable costs totaled \$720,000, and fixed costs totaled \$550,000.
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ch06 - Exercises Set B 1 EXERCISES SET B E6-1B The Santa...

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