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chapter_3

What impact will these cost changes have on operating

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Unformatted text preview: n Exercise 3-26. Assume that the company plans to sell Organizing Yourself units per month. Consider requirements (b), (c), and (d) independently of each other. for Success in College Required a. What will be the operating proﬁt? b. What is the impact on operating proﬁt if the sales price decreases by 10 percent? Increases by 20 percent? c. What is the impact on operating proﬁt if variable costs per unit decrease by 10 percent? Increase by 20 percent? d. Suppose that ﬁxed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating proﬁt for the year? Will proﬁt go up? Down? By how much? 3-28. Analysis of Cost Structure (L.O. 2) The Dollar Store’s cost structure is dominated by variable costs with a contribution A P T E R S I N P A R T O N C H margin ratio of .30 and ﬁxed costs of \$30,000. Every dollar of sales contributes 30 cents toward ﬁxed costs and proﬁt. The cost structure of a competitor, One-Mart, is dominated by ﬁxed costs with a higher con1 of sales contributes Successful in College tribution margin ratio of .80 and ﬁxed costs of \$280,000. Every dollar Making Yourself80 cents toward ﬁxed costs and proﬁt. Both companies have sales of \$500,000 for the month. E 2 Approaching College Reading and Required Developing a College-Level Vocabulary a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5. b. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company’s proﬁts increase? 3 Approaching College Assignments: Reading Textbooks and Following Directions (L.O. 2) 3-29. Analysis of Cost Structure Foxx Company’s cost structure is dominated by variable costs with a contribution margin ratio of .25 and ﬁxed costs of \$100,000. Every dollar of sales contributes 25 cents toward ﬁxed costs and proﬁt. The cost structure of a competitor, Beyonce, Inc., is dominated by ﬁxed costs with a higher contribution margin ratio of .80 and ﬁxed costs of \$400,000. Every dollar of sales contributes 80 cents toward ﬁxed costs and proﬁt. Both companies have sales of \$600,000 per month. Required a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5. b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s proﬁts increase? 3-30. CVP and Margin of Safety Rainbow Tours gives walking tours of Springﬁeld. Rainbow charges \$40 per person for the tour and incurs \$16 in variable costs for labor, drinks, and maps. The monthly ﬁxed costs for Rainbow Tours are \$3,600. Required a. How many tours must Rainbow sell every month to break even? b. Rainbow Tours’s owner believes that 175 people a month will sign up for the walking tour. What is the margin cor50782_ch01_001-072.indd 1 of safety in terms of the number of people signing up for the tour? lan27114_ch03_080-109.indd 99 ✓ Rela...
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