ch03_1 - CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS 3-2 1. 2. 3....

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CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS 3-2 The assumptions underlying the CVP analysis outlined in Chapter 3 are 1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units sold. 2. Total costs can be separated into a fixed component that does not vary with the units sold and a component that is variable with respect to the units sold. 3. When represented graphically, the behavior of total revenues and total costs are linear (represented as a straight line) in relation to units sold within a relevant range and time period. 4. The selling price, variable cost per unit, and fixed costs are known and constant. 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
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ch03_1 - CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS 3-2 1. 2. 3....

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