chapter_3

The total revenue tr line relates total revenue to

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Unformatted text preview: dollars or cost dollars,CforAexample). We plotAvolume N E on H PTERS IN P RT O the horizontal axis (number of prints sold per month or sales dollars, for example). The total revenue (TR) line relates total revenue to volume (for example, if U-Develop sells 1 Making Yourself Successful in College 12,000 prints in a month, its total revenue would be $7,200, according to the graph). The slope of TR is the price per unit, P (for example, $.60 per print for U-Develop). The total cost (TC) line shows the total cost for each volume. For example, the total cost 2 Approaching College Reading and for a volume of 12,000 prints is $5,820 ( [12,000 $.36] $1,500). The intercept of the total cost line is the fixed cost for the period, FDeveloping a is the variable cost per unit, V , and the slope College-Level Vocabulary . The break-even point is the volume at which TR TC (that is, where the TR and TC lines intersect). Volumes lower than break even result in an College Assignments:TR 3 Approaching operating loss because TC; volumes higher than break even result in an operating profit because TR TC. For Reading Textbooks and Following Directions U-Develop, 6,250 prints is the break-even volume. Self-Study Question 1. The following information for Jennifer’s Framing Supply is given for March: Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed manufacturing costs . . . . . . . . . . . . . . . . Fixed marketing and administrative costs . . . . . Total fixed costs . . . . . . . . . . . . . . . . . . . . . . . . Total variable costs . . . . . . . . . . . . . . . . . . . . . . Unit price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit variable manufacturing cost . . . . . . . . . . . Unit variable marketing cost . . . . . . . . . . . . . . . cor50782_ch01_001-072.indd 1 lan27114_ch03_080-109.indd lan27114_ch03_080-109.indd 86 $360,000 35,000 25,000 60,000 240,000 90 55 5 Compute the following: ✓ Related Resources a. Monthly operating profit when sales total $360,000 See pages 000 to 000 (as here). of the Annotated Instructor’s b. Break-even number in units. Edition for general suggesc. Number of units sold that would produce related to the chapters an tions operating profit of $120,000. in Part One. d. Sales dollars required to earn an operating profit of $20,000. 1 e. Number of units sold in March. f. Number of units sold that would produce an operating profit of 20 percent of sales dollars. The solution to this question is at the end of the chapter on page 109. 10/5/09 11:09:29 PM 10/22/09 10:33:53 PM REVISED PAGES Chapter 3 Fundamentals of Cost-Volume-Profit Analysis 1 87 The amount of operating profit or loss can be read from the graph by measuring the PART vertical distance between TR and TC. For example, the vertical distance between TR and TC when X 12,000 indicates Profit $1,380 ( $7,200 $5,820). Profit-Volume Model Instead of considering revenues and costs separately, we can analyze the relation between profit and volume directly. This approach to CVP...
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