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S3 - 3-16 a b c d 3-17(10 min CVP computations Revenues...

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3-16 (10 min.) CVP computations. Variable Fixed Total Operating Contribution Contribution Revenues Costs Costs Costs Income Margin Margin % a. $2,000 $ 500 $ 300 $ 800 $1,200 $1,500 75.0% b. 2,000 1,500 300 1,800 200 500 25.0% c. 1,000 700 300 1,000 0 300 30.0% d. 1,500 900 300 1,200 300 600 40.0% 3-17 (10–15 min.) CVP computations. 1a. Sales ($68 per unit × 410,000 units) $27,880,000 Variable costs ($60 per unit × 410,000 units) 24,600,000 Contribution margin $ 3,280,000 1b. Contribution margin (from above) $3,280,000 Fixed costs 1,640,000 Operating income $1,640,000 2a. Sales (from above) $27,880,000 Variable costs ($54 per unit × 410,000 units) 22,140,000 Contribution margin $ 5,740,000 2b. Contribution margin $5,740,000 Fixed costs 5,330,000 Operating income $ 410,000 3. Operating income is expected to decrease by $1,230,000 ($1,640,000 − $410,000) if Ms. Schoenen’s proposal is accepted. The management would consider other factors before making the final decision. It is likely that product quality would improve as a result of using state of the art equipment. Due to increased automation, probably many workers will have to be laid off. Garrett’s management will have to consider the impact of such an action on employee morale. In addition, the proposal increases the company’s fixed costs dramatically. This will increase the company’s operating leverage and risk. 3-18 (35–40 min.) CVP analysis, changing revenues and costs. 1a. SP = 6% × $1,500 = $90 per ticket VCU = $43 per ticket CMU = $90 – $43 = $47 per ticket FC = $23,500 a month Q= = = 500 tickets 1b. Q = = 3-=
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= = 862 tickets (rounded up) 2a. SP = $90 per ticket VCU = $40 per ticket CMU= $90 – $40 = $50 per ticket FC = $23,500 a month Q = = = 470 tickets 2b. Q = = = = 810 tickets 3a. SP = $60 per ticket VCU = $40 per ticket CMU= $60 – $40 = $20 per ticket FC = $23,500 a month Q = = = 1,175 tickets 3b. Q = = = = 2,025 tickets The reduced commission sizably increases the breakeven point and the number of tickets required to yield a target operating income of $17,000: 6% Commission Fixed (Requirement 2) Commission of $60 Breakeven point 470 1,175 Attain OI of $10,000 810 2,025 4a.The $5 delivery fee can be treated as either an extra source of revenue (as done below) or as a cost offset. Either approach increases CMU $5: SP= $65 ($60 + $5) per ticket VCU = $40 per ticket CMU= $65 – $40 = $25 per ticket 3-=
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FC = $23,500 a month Q = = = 940 tickets 4b. Q = = = = 1,620 tickets The $5 delivery fee results in a higher contribution margin which reduces both the breakeven point and the tickets sold to attain operating income of $17,000. 3-=
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3-19 (20 min.) CVP exercises. Revenues Variable Costs Contribution Margin Fixed Costs Budgeted Operating Income Orig. $10,000,000 G $8,000,000 G $2,000,000 $1,800,000 G $200,000 1. 10,000,000 7,800,000 2,200,000 a 1,800,000 400,000 2. 10,000,000 8,200,000 1,800,000 b 1,800,000 0 3. 10,000,000 8,000,000 2,000,000 1,890,000 c 110,000 4. 10,000,000 8,000,000 2,000,000 1,710,000 d 290,000 5. 10,800,000 e 8,640,000 f 2,160,000 1,800,000 360,000 6. 9,200,000 g 7,360,000 h 1,840,000 1,800,000 40,000 7. 11,000,000 i 8,800,000 j 2,200,000 1,980,000 k 220,000 8. 10,000,000 7,600,000 l 2,400,000 1,890,000 m 510,000 G stands for given. a $2,000,000 × 1.10 ; b $2,000,000 × 0.90; c $1,800,000 × 1.05; d $1,800,000 × 0.95; e $10,000,000 × 1.08; f $8,000,000 × 1.08; g $10,000,000 × 0.92; h $8,000,000 × 0.92; i $10,000,000 × 1.10; j $8,000,000 × 1.10; k $1,800,000 × 1.10; l $8,000,000 × 0.95; m $1,800,000 × 1.05 3-20 (20 min.) CVP exercises. 1a. [Units sold (Selling price – Variable costs)] – Fixed costs = Operating income [5,000,000 ($0.50 – $0.30)] – $900,000 = $100,000 1b. Fixed costs ÷ Contribution margin per unit = Breakeven units $900,000 ÷ [($0.50 – $0.30)] = 4,500,000 units Breakeven units × Selling price = Breakeven revenues 4,500,000 units × $0.50 per unit = $2,250,000 or, Contribution margin ratio = = = 0.40 Fixed costs ÷ Contribution margin ratio = Breakeven revenues $900,000 ÷ 0.40 = $2,250,000 2. 5,000,000 ($0.50 – $0.34) – $900,000 = $ (100,000) 3. [5,000,000 (1.1) ($0.50 – $0.30)] – [$900,000 (1.1)] = $ 110,000 4. [5,000,000 (1.4) ($0.40 – $0.27)] – [$900,000 (0.8)] = $ 190,000 5. $900,000 (1.1) ÷ ($0.50 – $0.30) = 4,950,000 units 6. ($900,000 + $20,000) ÷ ($0.55 – $0.30) = 3,680,000 units 3-=
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3-21 (10 min.) CVP analysis, income taxes.
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