Acct306 Homework Ch03

Acct306 Homework Ch03 - CHAPTER 3 COST-VOLUME-PROFIT...

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3-1 CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS NOTATION USED IN CHAPTER 3 SOLUTIONS SP: Selling price VCU: Variable cost per unit CMU: Contribution margin per unit FC: Fixed costs TOI: Target operating income 3-34 CVP, target operating income, service firm. 1. Revenue per child \$580 Variable costs per child 230 Contribution margin per child \$350 Breakeven quantity = child per margin on Contributi costs Fixed = \$5,600 \$350 = 16 children 2. Target quantity = child per margin on Contributi income operating Target costs Fixed + = \$5,600 \$10,500 \$350 + = 46 children 3. Increase in rent (\$3,150 – \$2,150) \$1,000 Field trips 1,300 Total increase in fixed costs \$2,300 Divide by the number of children enrolled ÷ 46 Increase in fee per child \$ 50 Therefore, the fee per child will increase from \$580 to \$630. Alternatively, New contribution margin per child = \$5,600 \$2,300 \$10,500 46 ++ = \$400 New fee per child = Variable costs per child + New contribution margin per child = \$230 + \$400 = \$630

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3-2 3-42 CVP analysis, income taxes, sensitivity. 1a.To breakeven, Agro Engine Company must sell 1,200 units. This amount represents the point where revenues equal total costs. Let Q denote the quantity of engines sold. Revenue = Variable costs + Fixed costs \$3,000Q = \$500Q + \$3,000,000 \$2,500Q = \$3,000,000 Q = 1,200 units Breakeven can also be calculated using contribution margin per unit. Contribution margin per unit = Selling price – Variable cost per unit = \$3,000 – \$500 = \$2,500 Breakeven = Fixed Costs ÷ Contribution margin per unit = \$3,000,000 ÷ \$2,500 = 1,200 units 1b. To achieve its net income objective, Agro Engine Company must sell 2,000 units. This amount represents the point where revenues equal total costs plus the corresponding operating income objective to achieve net income of \$1,500,000. Revenue = Variable costs + Fixed costs + [Net income ÷ (1 – Tax rate)] \$3,000Q = \$500Q + \$3,000,000 + [\$1,500,000 ÷ (1 0.25)] \$3,000Q = \$500Q + \$3,000,000 + \$2,000,000 Q = 2,000 units 2. To achieve its net income objective, Agro Engine Company should select alternative c, where fixed costs are reduced by 20% and selling price is reduced by 10% resulting in 1,700 additional units being sold through the end of the year. This alternative results in the highest net income and is the only alternative that equals or exceeds the company’s net income objective of \$1,500,000. Calculations for the three alternatives are shown below. Alternative a Revenues = (\$3,000 × 300) + (\$2,400 a × 2,000) = \$5,700,000 Variable costs = \$500 × 2,300 b = \$1,150,000 Operating income = \$5,700,000 \$1,150,000 \$3,000,000 = \$1,550,000 Net income = \$1,550,000 × (1 0.25) = \$1,162,500 a \$3,000 – (\$3,000 × 0.20) = ; b 300 units + 2,000 units.
3-3 Alternative b Revenues = (\$3,000 × 300) + (\$2,750 c × 1,800) = \$5,850,000 Variable costs = (\$500 × 300) + (\$450 d × 1,800) = \$960,000 Operating income = \$5,850,000 \$960,000 \$3,000,000 = \$1,890,000 Net income = \$1,890,000 × (1 0.25) = \$1,417,500 c \$3,000 – \$250; d \$450.

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This note was uploaded on 03/14/2012 for the course ACCT 306 taught by Professor Donkovacic during the Spring '12 term at CSU San Marcos.

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Acct306 Homework Ch03 - CHAPTER 3 COST-VOLUME-PROFIT...

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