Session 5: CVP Analysis
Problem 1:
The Sunbird Café’s average lunch sells for $12, while its variable costs per lunch average $8.
It plans to advertise a Monday lunch special for $11. The special would cost the café $7.75
per meal. An advertisement is the local newspaper to promote the special would cost
$200
.
Required:
1)
Calculate contribution margin and contribution margin ratio.
2)
What are the CM and CMR on the lunch special?
3)
How many meals must be sold to cover the promotion of the lunch special?
1)
Contribution margin =
$12 - $8 = $4
Contribution margin ratio =
$4 / $12 x 100% = 33.33%
2)
Contribution margin =
$11 - $7.75 = $3.25
Contribution margin ratio =
$3.25 / $11 x 100% = 29.55%
3)
$11( sales) - $7.75( variable cost)= $3.25
(Contribution Margin – Fixed Cost)
$200 / $3.25 = 61.53 = 62 meals
NP = 0
$3,25 X meals = $200
meals
= $200 / $3.250
=
62 meals
Problem 2:
Lac-Léman Hotel has 100 guestrooms. It has an average room rate of $80 and a variable of
cost of $15 per room. Its monthly fixed costs total $100,000. Assume it is a room only
property and there is no other sales activity.
Required:
1)
Compute breakeven rooms.
Contribution margin =
$80 - $15 = $65
$65 x ? rooms = $100,000
? rooms = 1538.46 rooms =
1539 rooms
2)
What day of the month does it break even if it averages an occupancy rate of 60%?
Assume all rooms are available for sale each day.
fb4f1f9dbf4aeb323d5b3545b78faab36ea07042.docx
Page 1 of 14

1,539
rooms
100
rooms x
60%
=
25.65
days
On 26th
3)
If variable costs are reduced by $3 and fixed costs increase by $72,000
annually
, what is
the monthly breakeven revenue?
$72,000 / 12 months = $6,000
B.E. = $106,000 / $68 = 1558.82 rooms = 1559 rooms
1559 rooms x $80 = $124720
Problem 3:
Samita has spent $750 for a tent, table, and chairs for his lemonade stand. He figures he can
sell a glass of lemonade in the park to little league players for $0.75. His cost per drink is
estimated to be $0.20. He also has to cover napkins, cups, and other variable costs
estimated to be $0.05 per glass of lemonade sold.
He will open his business on June (a Monday) and be open five days each week for the
summer months of June through August. He will pay his parents $2 each day to transport
him and his materials to and from the park.
Rayco projects daily sales of 100 glasses of lemonade.
Required:
1)
What is his contribution margin?
2)
What is his breakeven point in units, given that he wants to cover all his costs?
3)
What day of the summer will he break even?

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- Fall '15
- NoriPearson
- Contribution Margin