# 18_AdditionalStudyQuestions - ACC 333(Farrell Class 18 Fall...

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ACC 333 (Farrell) Class 18 Fall 2011 Page 1 of 4 Additional Study Questions Cost-Volume-Profit (CVP) Analysis 1) The Doral Company manufactures and sells pens. Data on Doral’s operations is as follows: annual sales 5,000,000 pens selling price per pen \$ 0.50 variable costs per pen \$ 0.30 annual fixed costs \$900,000 a) What is Doral’s current yearly operating income? b) What is the current breakeven point in sales dollars? c) Compute the new operating income if there was a \$0.04 per-unit increase in variable costs. d) Compute the new operating income if there was a 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable costs, and a 40% increase in units sold. e) Assuming the original unit sales, price, and variable cost data, compute the new breakeven point in units for a 10% increase in fixed costs. f) Assuming the original unit sales and variable cost data, compute the new breakeven point in units for a 10% increase in selling price and a \$20,000 increase in fixed costs. 2) RapidMeal Co. has two restaurants that are open 24 hours per day. Fixed costs for the two restaurants together totals \$450,000 per year. Service varies form a cup of coffee to full meals. The average sales check for each customer is \$8.00. The average cost of food and other variable costs for each customer is \$3.20. The income tax rate is 30%. Target net income after taxes is \$105,000. Note that this means the CVP analysis needs to be extended to net income so that it incorporates income taxes (i.e., operating income minus 30% of operating income equals net income). a) Compute the total dollar sales needed to obtain the target net income. b) How many sales checks are needed to earn the target net income? c) How many sales checks are needed to break even? d) Compute net income if the number of sales checks is 150,000. 3) Cost-volume-profit analysis includes some simplifying assumptions. Which of the following is not one of these assumptions? (a) Cost and revenue behaviors are both linear. (b)

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18_AdditionalStudyQuestions - ACC 333(Farrell Class 18 Fall...

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