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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.Formula for Computation of Break-Even Point in UnitsFixed cost $250,000––––––––––––––––––––––––––––=–––––––––––––––=6,250 unitsContribution margin per unit$125 – $85Break-Even Point in Sales DollarsSales price$ 125x Number of units 6,250Sales volume in dollars$781,250Margin of Safety ComputationsUnitsDollarsBudgeted sales10,000$1,250,000Break-even sales6,250781,250Margin of safety3,750$ 468,750Percentage ComputationMargin of safety in dollars$468,750–––––––––––––––––––––––––––=––––––––––––––=37.5%Budgeted sales$1,250,0003-19
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Problem 3-24A (continued)d.Break-Even Graph3-20200,000400,0001,200,0001,000,000800,000600,0001,0002,0003,0004,0005,000-0--0-Area of lossArea of profitabilityFixed cost$250,000Total cost Total sales6,250 break-even point in unitsUnits$781,250break-evenpoint in dol-larsBreak-evenpoint6,0007,0008,0009,000$
Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability Problem 3-25Aa.Total units sold = 160 + 640 = 800 unitsRelative percentage for Power = 160 / 800 = 20%Relative percentage for Lite = 640 / 800 = 80%b.Contribution margin per unit of Power: $180 x .20 =$ 36Contribution margin per unit of Lite: $120 x .80 = 96Weighted-average contribution margin per unit $132c.Break-even point = Fixed cost ÷Weighted-average CM perunitBreak-even point = $66,000 / $132 = 500 unitsd.Required sales for Power = 500 units x .20 = 100 unitsRequired sales for Lite = 500 units x .80 = 400unitsTotal 500unitsPowerLite Total Sales price (a)$500$450Variable costs (b)$320$330Break-even units (c)100 units