chapter 7 solutions

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

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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....
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## 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.

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

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