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ACC 350
Dr. Janice Mereba
Case 1 – CVP Analysis – 75 points
DUE BY MIDNIGHT SUNDAY, MAY 2, 2010
Part 1 = 10 points
Part 2, 3 and 4 = 15 points each (45)
Part 4 Memo = 20 points
This assignment presents four different scenarios for an entrepreneur that requires you to make business
decisions. In this case analysis, you must calculate breakeven points, identify points at which you should
be indifferent between choices, calculate how to achieve aftertax target income, and make rational
choices among options, providing discussion to support your recommendations based on the results you
obtained.
Please use the following to answer the first three questions.
Jocelyn Wyndham has been working with a popular fashion designer for the past several years. She decided to
open a bridal shop, Jocelyn by Design, where gowns will be customdesigned and fitted for each customer. Since
her designs are new and she will be using unknown designers too, she will start low, charging an average price of
$2,000. Her designers will earn a commission of 20% of the price. Fabric and notions will cost roughly $350 per
gown, and tailors will be paid $150 for fitting each gown.
There is a vacant storefront that Jocelyn plans to use. Rent is $2,500 per month. Utilities, insurance, depreciation
on sewing machines, store furniture and fixtures will run around $450 per month. Jocelyn will pay herself a salary
of $2,400 per month and will pay a sales associate $1,250 per month. The tax rate is estimated by Jocelyn to be
30%.
1.
Based on the information, how many Bridal gowns per month would Jocelyn need to sell in order to break
even?
Please show your work.
Price = $2,000
Variable costs =
•
Commissions (20% of $2,000)
= $400
•
Fabric and notions
=
350
•
Tailor fittings
=
150
Total variable cost
=
$900
Contribution margin (CM) per unit = Price – Variable cost = $2,000 – 900 =
$1,100 per gown
Fixed costs =
Rent
= $2,500
Utilities, insurance, etc.
=
450
Salaries
=
3,650
Total fixed cost (TFC)
=
$6,600
At the breakeven point, Total CM = TFC, so
$1,100* Quantity = $6,600. Then quantity = 6 gowns per month at the breakeven point
1
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If Jocelyn wanted to earn net income of $7,700 per month, assuming the information given above, what
amount of
revenue
would she need to make?
HINT: Keep in mind that taxes must be paid.
Show in
detail how you arrived at your answer.
o
To figure out Revenue, first inflate NI to operating Income. NI/(1tax rate) = Operating Income.
$7,700/(1.30) = $11,000 Operating Income
.
o
Next, add operating income to TFC (from Question 1) and determine the amount of contribution
margin needed. It is $6,600 + $11,000 = $17,600
o
You can then determine revenue needed two ways.
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 Spring '10
 JACOB

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