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# 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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