Unformatted text preview: Scroll Right to View SelfTests #14, #15 and #16 SELFTEST #13  TOPDOWN QUESTION IN UNITS Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold Dollars Percent 120,000 Per Unit 30,000 90,000 70,000 20,000 ======== 1,000 Question #13 a) If your sales increase by 100 rooms, and your fixed expenses increase to 110% of what they are now, what would your new net income be? b) Why is this a topdown question? Scroll Right to View SelfTests #15 and #16 SELFTEST #14  TOPDOWN QUESTION IN UNITS Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold Dollars Percent 120,000 Per Unit 30,000   90,000 70,000 20,000 ======== 1,000 Question #14 a) If your sales decrease by 50 rooms, and your fixed expenses increase by 7% of what they are now, what would your new net income be? b) Why is this a topdown question? Scroll Right to View SelfTest #16 SELFTEST #15  BOTTOMUP QUESTION WITH ANSWER IN UNITS Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold increase by 7% Dollars Percent 120,000 Per Unit 30,000   90,000 70,000 20,000 ======== 1,000 Question #15 a) In order to maintain your current net income of $20,000, how many more rooms must you sell if your fixed expenses increase by 10%? b) Why is this a bottomup question? Scroll Left to View SelfTests #13, #14, #15 and #16 ANSWER IN UNITS SELFTEST #16  BOTTOMUP QUESTION WITH ANSWER IN UN Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold Dollars Percent 120,000 30,000  90,000 70,000 20,000 ======== 1,000 ,000, how many more e by 10%? Question #16 a) In order to generate a net income of $25,000, how many more rooms must you sell if your fixed expenses increase by 5% and yo variable expense percentage increases to 30%? b) Why is this a bottomup question? 13, #14, #15 and #16 ION WITH ANSWER IN UNITS Per Unit  ,000, how many more es increase by 5% and your? Scroll Right to View Solutions to SelfTests #14, #15 and #16 SOLUTION TO SELFTEST #13  TOPDOWN QUESTION WITH ANSWER IN UNITS Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold Dollars Percent 120,000 100.00% Per Unit $120 30,000 25.00% $30   90,000 75.00% $90 70,000 20,000 ======== 1,000 Question #13 a) If your sales increase by 100 rooms, and your fixed expenses increase to 110% of what they are now, what would your new net income be? b) Why is this a topdown question? Answer to question 13 b) This is a topdown question because you are given sufficient data to calculate the sales, which are at the top of an income statement, and you must then work your way DOWN the income statement to find what the net income would be. SOLUTION  Question # 13 a) Step #1 Always calculate percentages for variable expenses and contribution margin, AND calculate price per unit, variable expense per unit and contribution margin per unit BEFORE you begin to solve any CVP problem. Step #2 Add the 100 additional rooms to the 1,000 rooms you are now selling and multiply the total by your average room rate of $120 per room. This gives you your new dollar sales amount of $132,000 (= $120 x 1,100 rooms) Step #3 Multiply your new sales by your contribution margin percent  75%  to obtain your new contribution margin. Step #4 Multiply your fixed expenses by 110% to obtain the new fixed expense amount. Step #5 Subtract the fixed expenses from the contribution margin to obtain the new net income. Scroll Right to View Solutions to SelfTests #15 and #16 TION WITH ANSWER IN UNITS SELFTEST #14  TOPDOWN QUESTION IN UNITS Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold xpenses increase to 110% Dollars 120,000 30,000 90,000 70,000 20,000 ======== 1,000 Question #14 a) If your sales decrease by 50 rooms, and your fixed expen of what they are now, what would your new net income b b) Why is this a topdown question? ient data to calculate the ou must then work your come would be. Answer to question 14 b) This is a topdown question because you are given sufficient sales, which are at the top of an income statement, and you m way DOWN the income statement to find what the net income SOLUTION  Question # 14 a) Step #1 Always calculate percentages for variable expenses and contribution margin, AND calculate price per unit, variable expense per unit and contribution margin per unit BEFORE you begin to solve any CVP problem. New sales 132,000 Step #2 Subtract the 50 rooms from the 1,000 rooms you are now selling and multiply the total by your average room rate of $120 per room. This gives you your new dollar sales amount of $114,000 (= $120 x 950 rooms) New CM (132,000 x 75%) 99,000 Step #3 Multiply your new sales by your contribution margin percent  75%  to obtain your n contribution margin. New Fixed Expenses (70,000 x 110%) New Net Income 77,000 22,000 Step #4 Multiply your fixed expenses by 107% to obtain the new fixed expense amount. (An increase BY 7% is the same as an increase TO 107%) Step #5 Subtract the fixed expenses from the contribution margin to obtain the new net inco to SelfTests #15 and #16 N QUESTION IN UNITS Percent Per Unit 100.00% $120 25.00% $30  75.00% $90 Scroll Right to View Solution to SelfT SELFTEST #15  BOTTOMUP QUE Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold oms, and your fixed expenses increase by 7% uld your new net income be? Question #15 a) In order to maintain your current net rooms must you sell if your fixed exp b) Why is this a bottomup question? ause you are given sufficient data to calculate the income statement, and you must then work your nt to find what the net income would be. Answer to question 15 b) This is a bottomup question because you are given the desire fixed expense amount. You must then work your way UP the i you must sell to be able to pay for these fixed expenses and s nd contribution margin, AND contribution margin per unit PROFORMA SOLUTION  Question # 15 a) Since this is a bottomup question, step #1 is at the bottom of the and from there we work our way UP to step #7  at the top of the The CVP Formula solution is below the ProForma solution. Step #7 To determine how many more room you must sell under the new the new total rooms required to be sold from the original rooms s New sales 126,000 ow selling and multiply 00 (= $120 x 950 rooms) Step #6 Divide your new sales by your average room rate of $120 per roo number of rooms you must sell to generate the new required doll New CM (114,000 x 75%) 85,500 rcent  75%  to obtain your new Step #5 Divide your new contribution margin by your contribution margin p w fixed expense amount. gin to obtain the new net income. New Fixed Expenses (70,000 x 107%) New Net Income 74,900 10,600 Step #4 Add your new fixed expenses to your desired net income to obtai required contribution margin. Step #3 Determine your new fixed expense amount by multiplying your cu expenses by 110%. Step #2 Since this is a bottomup question we will start at the bottom of th statement by entering the desired net income of $20,000.. Step #1 Always calculate percentages for variable expenses and contribu calculate price per unit, variable expense per unit and contributio BEFORE you begin to solve any CVP problem. CVP FORMULA SOLUTION  Question # 14 a) You will notice how much simpler the CVP formula solution is. Yo into the CVP equation. Step #1 Always calculate percentages for variable expenses and contribu calculate price per unit, variable expense per unit and contributio BEFORE you begin to solve any CVP problem. Step #2 Calculate the new fixed expenses by multiplying original fixed exp Step #3 Fill in all the information required by the CVP formula. You should made the calculations required by Step #1. Remember that beca should divide by the contribution margin per unit, instead of by th Fixed expenses + Net Income 77,000 + 20,000 $90 CM/Room Step #4 To determine how many more room you must sell under the new the new total rooms required to be sold from the original rooms s ht to View Solution to SelfTest #16 EST #15  BOTTOMUP QUESTION WITH ANSWER IN UNITS Dollars Percent 120,000 100.00% Per Unit $120 Sales Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold Question #16 a) 30,000 25.00% $30   90,000 75.00% $90 70,000 20,000 ======== 1,000 o maintain your current net income of $20,000, how many more st you sell if your fixed expenses increase by 10%? is a bottomup question? ause you are given the desired net income and a way to calculate the new t then work your way UP the income statement to determine how many covers or these fixed expenses and still generate the desired net income. b) Answer to question 16 b) This is a bottomup question because you ar fixed expense amount. You must then work y you must sell to be able to pay for these fixed step #1 is at the bottom of the income statement shown to the right to step #7  at the top of the income statement. w the ProForma solution. Required Increase in you must sell under the new conditions, subtractRooms to be Sold old from the original rooms sold. (1,078  1,000) age room rate of $120 per room to determine the Required Rooms to Sell enerate the new required dollar sales. (129,333/120) by your contribution margin percentage. Required New sales (97,000/.75) 78 Additional rooms 1,078 129,333 PROFORMA SOLUTION  Question # Since this is a bottomup question, step #1 is and from there we work our way UP to step # The CVP Formula solution is below the Pr Step #7 To determine how many more room you mus the new total rooms required to be sold from Step #6 Divide your new sales by your average room number of rooms you must sell to generate th Step #5 Divide your new contribution margin by your Remember your variable expense percent in going to be 100 minus 30 = 70%. ur desired net income to obtain the new New CM (20,000 + 77,000) 97,000 Step #4 Add your new fixed expenses to your desired required contribution margin. amount by multiplying your current fixed New Fixed Expenses (70,000 x 110%) 77,000 Step #3 Determine your new fixed expense amount b expenses by 105%. e will start at the bottom of the income et income of $20,000.. riable expenses and contribution margin, AND ense per unit and contribution margin per unit P problem. Desired Net Income 20,000 Step #2 Since this is a bottomup question we will sta statement by entering the desired net income uestion # 14 a) e CVP formula solution is. You simply fill in the required data riable expenses and contribution margin, AND ense per unit and contribution margin per unit P problem. y multiplying original fixed expenses of $70,000 by 110%. New Fixed 77,000 Step #1 Always calculate percentages for variable ex calculate price per unit, variable expense per BEFORE you begin to solve any CVP proble CVP FORMULA SOLUTION  Question # You will notice how much simpler the CVP fo into the CVP equation. Step #1 Always calculate percentages for variable ex calculate price per unit, variable expense per BEFORE you begin to solve any CVP proble Step #2 Calculate the new fixed expenses by multiply the CVP formula. You should already have the CM per room if you tep #1. Remember that because you want the answer in units you rgin per unit, instead of by the contribution margin percent. Step #3 Because the variable expense percentage ch contribution margin per room. This is done by 100% minus 30% = 70%. Since the variable the contribution margin percentage DECREA = 1,078 Rooms must be sold to cover the new, higher fixed expenses and continue generating the same net income. Step #4 Fill in all the information required by the CVP Remember that because you want the answe contribution margin per unit, instead of by the 78 Additional rooms Required Increase in you must sell under the new conditions, subtractRooms to be Sold old from the original rooms sold. (1,078  1,000) Step #5 To determine how many more room you mus the new total rooms required to be sold from Scroll Left to View Solutions to SelfTests #13, #14, #15 and #16 SELFTEST #16  BOTTOMUP QUESTION WITH ANSWER IN UNITS Original New Dollars Percent Per Unit Percent Per Unit 120,000 100.00% $120 100.00% $120 Variable Expenses Contribution Margin Fixed Expenses Net Income Rooms sold 30,000 25.00% $30 30.00% $ 36     90,000 75.00% $90 70.00% $ 84 70,000 20,000 ======== 1,000 Question #16 In order to generate a net income of $25,000, how many more rooms must you sell if your fixed expenses increase by 5% and your? variable expense percentage increases to 30%? Why is this a bottomup question? to question 16 b) ottomup question because you are given the desired net income and a way to calculate the new nse amount. You must then work your way UP the income statement to determine how many covers sell to be able to pay for these fixed expenses and still generate the desired net income. ORMA SOLUTION  Question # 16 a) is a bottomup question, step #1 is at the bottom of the income statement shown to the right here we work our way UP to step #7  at the top of the income statement. Formula solution is below the ProForma solution. Required Increase in ine how many more room you must sell under the new conditions, subtract Rooms to be Sold tal rooms required to be sold from the original rooms sold. (1,173  1,000) r new sales by your average room rate of $120 per room to determine the rooms you must sell to generate the new required dollar sales. r new contribution margin by your NEW contribution margin percentage. r your variable expense percent increased to 30%, so your new CM% is e 100 minus 30 = 70%. 173 Additional rooms Required Rooms to Sell ($140,714/ $120) 1,173 Required New sales (98,500/.70) 140,714 new fixed expenses to your desired net income to obtain the new ontribution margin. your new fixed expense amount by multiplying your current fixed New CM (25,000 + 73,500) New Fixed Expenses (70,000 x 105%) 98,500 73,500 is a bottomup question we will start at the bottom of the income by entering the desired net income of $25,000.. lculate percentages for variable expenses and contribution margin, AND rice per unit, variable expense per unit and contribution margin per unit you begin to solve any CVP problem. Desired Net Income 25,000 RMULA SOLUTION  Question # 14 a) tice how much simpler the CVP formula solution is. You simply fill in the required data VP equation. lculate percentages for variable expenses and contribution margin, AND rice per unit, variable expense per unit and contribution margin per unit you begin to solve any CVP problem. the new fixed expenses by multiplying original fixed expenses of $70,000 by 105%. New Fixed 73,500 he variable expense percentage changed to 30% from 25% you must now calculate a new n margin per room. This is done by multiplying the room rate ($120) by the new CM%, which is us 30% = 70%. Since the variable expense percentage INCREASED by 5% from 25% to 30% ution margin percentage DECREASED from 75% to 70%. e information required by the CVP formula. r that because you want the answer in units you should divide by the n margin per unit, instead of by the contribution margin percent. Fixed expenses + Net Income 73,500 + 25,000 $84.00 New CM/Room = 1,173 Rooms must be sold to cover the new, higher fixed expenses and continue generating the same net income. Required Increase in Rooms to be Sold (1,173  1,000) ine how many more room you must sell under the new conditions, subtract tal rooms required to be sold from the original rooms sold. 173 Additional rooms ...
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This note was uploaded on 03/07/2011 for the course HFT 4486 taught by Professor Brier during the Spring '07 term at FIU.
 Spring '07
 Brier

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