3 14 Chapter 3 Analysis of Cost Volume and Pricing to Increase Profitability

# 3 14 chapter 3 analysis of cost volume and pricing to

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Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Required Sales in UnitsFixed cost + Target profit\$280,000 + \$252,000–––––––––––––––––––––––––––––=–––––––––––––––––––=9,500 unitsContribution margin per unit\$56Required Sales in Number of DollarsSales price\$ 80x Number of units 9,500Sales volume in dollars\$760,000Income StatementSales (\$80 x 9,500)\$ 760,000Variable cost (\$24 x 9,500) (228,000)Contribution margin 532,000Fixed cost (280,000)Net income\$ 252,000f.The change in variable cost will cause the contribution mar-gin to decrease to \$50 (\$80 – \$30).Required Sales in UnitsFixed cost + Target profit\$280,000 + \$252,000–––––––––––––––––––––––––––––=–––––––––––––––––––=10,640 unitsContribution margin per unit\$50Problem 3-23A (continued)Required Sales in Dollars3-15
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Sales Price\$ 80x Number of units 10,640Sales volume in dollars\$851,200Income StatementSales (\$80 x 10,640)\$ 851,200Variable cost (\$30 x 10,640) (319,200)Contribution margin 532,000Fixed cost (280,000)Net income\$ 252,000g.Margin of Safety ComputationsUnitsDollarsBudgeted sales at \$80 per unit10,000\$800,000Break-even sales at \$80 per unit*5,600(448,000)Margin of safety4,400\$352,000*[\$280,000 ÷ (\$80 – \$30)] = 5,600 Percentage ComputationMargin of safety in dollars\$352,000–––––––––––––––––––––––––––=––––––––––––––=44%Budgeted sales\$800,0003-16
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Problem 3-23A (continued)h.Break-Even Graph3-172,0004,0006,0008,00010,000-0-Total cost Total sales5,600 break-even point in unitsUnits300,000400,000\$800,000700,000600,000500,000-0-Area of LossArea of profitabilityFixed cost\$280,000\$448,000Break-evenpoint in dol-larsBreak-evenpoint200,000100,000
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Problem 3-24AFormula for Computing Sales Volume to Earn Target Profit of \$60,000Fixed cost + Target profit\$240,000 + \$60,000––––––––––––––––––––––––––––––=–––––––––––––––––––––=6,000 unitsContribution margin per unit\$125 – \$75Required Sales in DollarsSales price\$ 125x Number of units 6,000Sales volume in dollars\$750,000Income StatementSales (6,000 x \$125)\$750,000Variable cost (6,000 x \$75) (450,000)Contribution margin 300,000Fixed cost (240,000)Net income\$ 60,000b.Mayer should proceed with plans to improve product quality. Asindicated by the following income statement, the quality enhance-ment project would add \$90,000 to net income (\$150,000 –\$60,000).Income StatementSales (10,000 x \$125)\$1,250,000Variable cost (10,000 x \$85) (850,000)Contribution margin 400,000Fixed cost (\$240,000 + \$10,000)(250,000)Net income\$ 150,0003-18a.
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Problem 3-24A (continued)c.

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