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Tutorial_2_Solution

Tutorial_2_Solution - 3.27 Breakeven Selling Price Target...

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3.27 Breakeven, Selling Price, Target Profit with Price and Cost Changes - All-Day Candy Company A. \$4*Q - \$2.40*Q - \$440,000 = \$0 Q = 275,000 boxes to break even B. Current contribution margin ratio = (\$4.00-\$2.40)/\$4.00 = 40% Estimated variable costs next period (only the candy costs increase) \$2.00 x 1.15 + \$0.40 = \$2.70 Selling price needed to maintain 40% contribution margin ratio: P - \$2.70 = 0.40*P 0.60*P = \$2.70 P = \$4.50 C. Current pre-tax income = \$4.00*390,000 units - \$2.40*390,000 units - \$440,000 = \$184,000 Required sales in units to maintain \$184,000 in pre-tax income: \$4Q - 2.70Q - 440,000 = \$184,000 \$1.30xQ= \$624,000 Q= 480,000 boxes Dollar sales = 480,000 boxes @ \$4 = \$1,920,000

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3.38 Breakeven, Avoidable Fixed Costs, Price, CVP Assumptions, Operating Risk - King Salmon Sales A. This question calls for a breakeven calculation, which means that the cost function must first be determined. Costs are categorized as shown in the following table. Labour costs are assumed to be variable because employees work only as needed. Administrative cost is assumed to be fixed because there is no information to suggest that this cost varies proportionately with volume of activity. Fixed Variable Fish \$200,000 Smoking materials 20,000 Packaging materials 30,000 Labour 300,000 Administrative \$150,000 Sales commission 10,000 Total \$150,000 \$560,000 If all variable costs vary with kilograms of salmon, then variable cost is estimated as: \$560,000/100,000 kgs. = \$5.60 per kg. The cost function is: TC = \$150,000 + \$5.60 per kg. If the selling price is the same as last year, it can estimated based on last year’s total revenue and total volume: Price = \$800,000/100,000 kgs. = \$8.00 per kg. In this problem, it is best to calculate the breakeven in units because there is a limit on the number of kilograms of salmon available: 0 = (\$8.00 – \$5.60)*Q - \$150,000 \$150,000 = \$2.40*Q Q = 62,500 kgs The company cannot cover its fixed costs, because it cannot acquire enough salmon to
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Tutorial_2_Solution - 3.27 Breakeven Selling Price Target...

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