chapter_3

The prices and costs of the two follow prints selling

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Unformatted text preview: 1 t)] ______________________________ E a College-Level Vocabulary Unit contribution margin $1,500 $2,400 ______________ $.24 3 Approaching College Assignments: Reading Textbooks and Following Directions 16,250 prints Multiproduct CVP Analysis When U-Develop started, it provided only one service, print processing. After a short time, a second service, enlargements of photos, was offered. The prices and costs of the two follow: Prints Selling price. . . . . . . . . . . . . . Variable cost . . . . . . . . . . . . . Contribution margin. . . . . . . . Enlargements $.60 .36 __ __ $.24 __ __ __ __ $1.00 .56 _____ $ .44 _____ _____ When these two services were offered, monthly fixed costs totaled $1,820. Without some assumptions, there is an infinite number of combinations of the two services that would cor50782_ch01_001-072.indd 1 achieve a given level of profit. To simplify matters, managers often lan27114_ch03_080-109.indd lan27114_ch03_080-109.indd 91 ✓ Related Resources See pages 000 to 000 of the Annotated Instructor’s Edition for general suggestions related to the chapters in Part One. 1 10/5/09 11:09:29 PM 10/22/09 10:34:00 PM REVISED PAGES Part II 92 Cost Analysis and Estimation 1 assume a particular product mix and compute break-even PA T or target volumesRusing either of two methods, a fixed product mix or weighted-average contribution margin, both of which give the same result. Fixed Product Mix Using the fixed product mix Orientation method, managers define a package or bundle of products in the typical product mix and then compute the breakeven or target volume for the package. For example, suppose that the owner of U-Develop is willing to assume that the prints and enlargements will sell in a 9:1 ratio; that is, of every ten “units” of service sold, nine will be prints and Preparing and Organizing Yourself one will be an enlargement. Defining X as a package of nine prints and one enlargement, the contribution margin from this for Success in College package is Managers compute the break-even or target volume of a bundle or package of products. Prints . . . . . . . . . . . . . . . . . Enlargements . . . . . . . . . . . Contribution margin . . . . . . 9 1 $.24 $.44 $2.16 .44 _____ $2.60 _____ _____ Now the break-even point is computed as follows X Fixed costs $1,820 Contribution margin $2.60 CHAPTERS IN PART ONE 700 packages 1 Making Yourself Successful in College where X refers to the break-even number of packages. This means that the sale of 700 packages of nine prints and one enlargement per package, totaling 6,300 prints and 700 enlargements, is required to break even.2 Approaching College Reading and Developing a College-Level Vocabulary Weighted-Average Contribution Margin The weighted-average contribution margin also requires an assumed product mix, which we continue to assume is 90 percent 3 Approaching solved by using a weightedprints and 10 percent enlargements. The problem can be College Assignments: average contribution margin per unit. When Reading Textbooksaand Following Directions a company assumes constant product mix, the contribution...
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