chapter_3

Suppose hdc rents spaces for both rvs and tent

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Unformatted text preview: rents spaces for recreational vehicles (RVs) by the day. HDC charges $15 per day for a space. The variable costs (including cleaning, maintenance, and supplies) are $7 per day. The fixed costs of HDC are $60,000 per year. HDC is subject to a tax rate of 35 percent on its income. If a “unit” is one space rented for one day, how many units does HDC have to rent annually to earn $48,750 after taxes? Suppose HDC rents spaces for both RVs and tent camping. The price and cost characteristics for each are as follows (one unit is a tent or RV space rented for one day): Price per Unit Tent space . . . . RV space . . . . . Variable Cost per Unit Units Rented per Year $6 15 $3 7 6,000 9,000 CHAPTERS IN PART ONE The fixed costs of HDC are $60,000 annually. Assuming the mix of tent and Yourself Successful as the current 1 Making RV spaces is the same in College mix, how many tent spaces and how many RV spaces must be rented annually for HDC to break even? 2 Approaching College Reading and 3 Approaching College Assignments: Reading Textbooks and Following Directions The solutions to these questions are at the end of the chapter on Developing a College-Level Vocabulary page 109. The Debrief Jamaal Kidd considered the spreadsheet he developed for his business and reflected on how it will help him as a manager: The cost-volume-profit analysis I learned in this chapter gives me a simple and intuitive approach to understanding how my decisions affect my profits. I know that there are limitations to the use of CVP analysis and that for many decisions, I will want to develop ✓ Related Resources more detailed analyses. But for quick answers for rouSee pages 000 to 000 tine decisions, CVP analysis is just what I need. of the Annotated Instructor’s Edition for general suggestions related to the chapters in Part One. Summary The cost analysis approach to decision making is used when the decisions affect costs and revenues and, hence, profit. In this chapter we considered the cost-volume-profit (CVP) analysis framework cor50782_ch01_001-072.indd for cost analysis. 1 lan27114_ch03_080-109.indd lan27114_ch03_080-109.indd 94 1 10/5/09 11:09:29 PM 10/22/09 10:34:02 PM REVISED PAGES Chapter 3 Fundamentals of Cost-Volume-Profit Analysis 1 95 The following summarizes key ideas tied to the chapter’s learning objectives. PART L.O. 1. Use cost-volume-profit (CVP) analysis to analyze decisions. CVP analysis is both a management tool for determining the impact of selling prices, costs, and volume on profits and a conceptual tool, or way of thinking, about managing a company. It helps management focus on the objective of obtaining the best possible combination of prices, volume, variable costs, and fixed costs. CVP analysis examines the impact of prices, costs, and volume on operating profits, as summarized in the profit equation Profit PX (VX F) Orientation where P V X F Average unit selling price Average unit variable costs Quantity of output Total fixed costs Pr...
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