Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitabilityc.N = Number of units to achieve desired profit N = (Fixed cost + Profit) ÷ Contribution margin per unitN = ($240,000 + $126,000) ÷ ($30 − $18) = 30,500 unitsTargeted sales in dollars = $30 x 30,500 = $915,000Exercise 3-14Aa.CVP analysis assumes that variable costs change in direct propor-tion to the amount of inputs used, which means that variable cost per unit of input is assumed to be constant. If a company incurs some of its cost in a currency whose exchange rate changes, then the variable cost per unit of input is not constant. In this case, even though the amount of wood used to produce one box of chopsticks did not change from January to September, the cost of that wood did, due to the change in the exchange rate between the yen and the dollar.b. Because the U.S. dollar lost value relative to the yen from January 2007 to September 2007, the cost of the wood needed to make one box of chopsticks increased, thus increasing variable costs per box.c. Because the variable costs of making a one box of chopsticks in-creased due to the change in the exchange rate, while the revenue per box did not, the contribution margin per box would decrease.d.The company’s fixed costs are based on the dollar, so the change in the exchange rate would not affect these costs.3-27
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase ProfitabilityExercise 3-15BTarget variable cost= Expected sales revenue -Fixed cost -Desired profit = $90 x 12,000 -$480,000 -$240,000 = $360,000Target variable cost per unit = $360,000 ÷12,000 = $30Exercise 3-16Ba.Weighted-average contribution marginProduct M $15 x .60 =$ 9Product N $35 x .40 =14Weighted-average contribution margin =$23Break-even = Fixed cost ÷Weighted-average contribution marginBreak-even = $115,000 ÷$23 = 5,000 unitsb.Product M = 5,000 units x .60 = 3,000 unitsProduct N = 5,000 units x .40 = 2,000 units3-28
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase ProfitabilityProblem 3-17Ba.N = Number of units to break-evenSales − Variable cost − Fixed cost = Profit (Sales price x N) − (Variable cost per unit x N) = Fixed cost + Profit(Contribution margin per unit x N) = Fixed cost + ProfitN = (Fixed cost + Profit) ÷ Contribution margin per unitN = ($360,000 + $0) ÷[$75 -($40 + $5)] = 12,000 unitsBreak-even dollars = 12,000 units x $75 selling price = $900,000b.N = Number of units to break-evenN = Fixed cost ÷ Contribution margin per unitN = $360,000 ÷ [$75 − ($40 + $5)] = 12,000 unitsBreak-even dollars = 12,000 units x $75 selling price = $900,000c.Contribution margin ratio = Contribution margin ÷Selling priceContribution margin ratio = $30 ÷$75 = 40%Break-even dollars = Fixed costs ÷Contribution margin ratioBreak-even dollars = $360,000 ÷.40 = $900,000Break-even units = $900,000 ÷$75 per unit = 12,000 unitsContribution Margin Income StatementSales ($75 x 12,000 units)$900,000Variable costs ($45 x 12,000)(540,000)Contribution margin360,000Fixed costs(360,000)Net income$ 03-29d.
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase ProfitabilityProblem 3-18Ba.N = Number of units to break-evenSales − Variable cost − Fixed cost = Profit (Sales price x N) − (Variable cost per unit x N) = Fixed cost + Profit(Contribution margin per unit x N) = Fixed cost + ProfitN = (Fixed cost + Profit) ÷ Contribution margin per unitN = ($720,000 + $0) ÷ ($72 − $54) = 40,000 units