JJ04 - Chapter 4 Cost-Volume-Profit Analysis QUESTIONS E14....

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Chapter 4 Cost-Volume-Profit Analysis QUESTIONS E14. LO 3 a. Expected profit is $800 (120) − $300 (120) − $50,000 = $10,000. b. The contribution margin ratio is $500 ÷ $800 = 0.625 Breakeven sales are $50,000 ÷ 0.625 = $80,000. Expected sales are $120 × $800 = $96,000. The margin of safety is equal to expected sales − break-even sales = $96,000 − $80,000 = $16,000. E18. LO 4 a. Stand A Stand B Selling price $80 $70 Variable costs 20 40 Contribution margin 60 30 ÷ Hours to produce 1 item 5 2 Contribution margin per hour $12 $15 The company should produce just stand B. With 320 hours available, this stand will generate $4,800 of contribution margin ($15 × 320 hours) while Stand A will generate just $3,840 ($12 × 320). b. If the company obtains additional labor, it should produce more of stand B. The incremental benefit of 10 labor hours is $150 ($15 contribution margin per hour x 10 hours). As an aside, note that if production of stand A requires 5 labor hours and variable costs
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JJ04 - Chapter 4 Cost-Volume-Profit Analysis QUESTIONS E14....

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