chapter_3

# Of the 15 variable costs 50 percent are from labor

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Unformatted text preview: would be the new break-even volume? cor50782_ch01_001-072.indd 1 lan27114_ch03_080-109.indd 100 1 10/5/09 11:09:29 PM 10/22/09 10:34:03 PM REVISED PAGES Chapter 3 Fundamentals of Cost-Volume-Profit Analysis PART 1 101 Problems accounting 3-36. CVP Analysis and Price Changes (L.O. 1) Argentina Partners is concerned about the possible effects of inﬂation on its operations. Presently, the company sells 60,000 units for \$30 per unit. The variable production costs are \$15, and ﬁxed costs amount to \$700,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the \$15 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that ﬁxed costs will rise by 5 percent as a result of increased taxes and other miscellaneous ﬁxed charges. The company wishes to maintain the same level of proﬁt in real dollar terms. It is expected that to accomplish this objective, proﬁts must increase by 6 percent during the year. Preparing and Organizing Yourself Required for Success in College a. Compute the volume in units and the dollar sales level necessary to maintain the present proﬁt level, assuming that the maximum price increase is implemented. b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in proﬁts, assuming that the maximum price increase is implemented. c. If the volume of sales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in proﬁts? Orientation 3-37. CVP Analysis and Price Changes (L.O. 1) Scholes Systems supplies a particular type of ofﬁce chair to large retailers such as Target, Costco, and Ofﬁce Max. Scholes is concerned about the possible effects of inﬂation on its operations. Presently, the company sells 80,000 units for \$60 per unit. The variable production costs are \$30, and ﬁxed costs amount to \$1,400,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming CHAPTERS year. Of the \$30 variable costs, 50 percent are from labor and 25 percent are from materials. Vari- I N P A R T O N E able overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that ﬁxed costs will rise by 5 percent as a result of increased taxes 1 Making Yourself Successful in College and other miscellaneous ﬁxed charges. The company wishes to maintain the same level of proﬁt in real dollar terms. It is expected that to accomplish this objective, proﬁts must increase by 6 percent during the year. 2 Approaching College Reading and Required Developing a College-Level Vocabulary a. Compute the volume in units and the dollar sales level necessary to m...
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## This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at Arizona.

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