chapter 7 solutions

chapter 7 solutions - CHAPTER 7 Cost-Volume-Profit Analysis...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 7 Cost-Volume-Profit Analysis 7-44 (45 MINUTES) 1. Break-even point in units: margin on contributi unit costs fixed point even- Break = Calculation of contribution margins: Labour- Intensive Production System Computer- Assisted Manufacturing System Selling price ...................................... $45.00 $45.00 Variable costs: Direct material .............................. $8.40 $7.50 Direct labour ................................. 10.80 9.00 Variable overhead ........................ 7.20 4.50 Variable selling cost .................... 3.00 29.40 3.00 24.00 Contribution margin per unit $15.60 $21.00 (a) Labour-intensive production system: units 175,000 $15.60 $2,730,000 $15.60 $750,000 $1,980,000 units in point even- Break = = + = (b) Computer-assisted manufacturing system: units 210,000 $21 $4,410,000 $21 $750,000 $3,660,000 units in point even- Break = = + = 7-44 (CONTINUED) 2. Zodiac’s management would be indifferent between the two manufacturing methods at the volume ( X ) where total costs are equal. $29.40 X + $2,730,000 = $24 X + $4,410,000 $5.40 X = $1,680,000 X = 311,111 units* *Rounded 3. Operating leverage is the extent to which a firm's operations employ fixed operating costs. The greater the proportion of fixed costs used to produce a product, the greater the degree of operating leverage. Thus, the computer-assisted manufacturing method utilizes a greater degree of operating leverage. The greater the degree of operating leverage, the greater the change in operating income (loss) relative to a small fluctuation in sales volume. Thus, there is a higher degree of variability in operating income if operating leverage is high....
View Full Document

This note was uploaded on 02/18/2012 for the course BUSE 237 taught by Professor Sf during the Spring '12 term at Simon Fraser.

Page1 / 6

chapter 7 solutions - CHAPTER 7 Cost-Volume-Profit Analysis...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online