# Year 9b represents the cost curve if variable cost

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Year 9b : Represents the cost curve if variable cost per unit increased. If costs increased by some combination of the two, the new cost curve would lie between the lines Year 9a and 9b. a Total costs = total revenue – profits.
Solutions 6-20
6.34 (Wolf Broadcasting; alternatives to reduce breakeven sales.)
6-21 Solutions
6.34 continued. c. Alternative B Sales ............................................................................ \$2,250,000 Variable Costs (.95)(\$1,250,000) ................................. 1,187,500 Total Contribution Margin ............................................. \$ 1,062,500 Contribution Margin Ratio = \$1,062,500/\$2,250,000 = .47 Breakeven Point in Dollars = \$1,300,000*/.47 = \$2,765,957. *\$1,300,000 = \$1,000,000 + \$300,000. d. The company should choose the alternative that yields the greatest profit in the projected relevant range, probably Alternative A. 6.35 (Shout Company; CVP analysis with semifixed [step] costs.) a. Breakeven points: Breakeven Unit Sales = Breakeven Units (Level 1) = \$40,000/(\$20 – \$12) = 5,000 Units Breakeven Units (Level 2) = \$80,000/(\$20 – \$12) = 10,000 Units Breakeven Units (Level 3) = \$100,000/(\$20 – \$12) = 12,500 Units Levels 2 and 3 provide a profit for the entire range of activity, hence, there is no breakeven point for either of these levels. b. Profit: Level 1 (10,000 units): (10,000 X \$8) – \$40,000 = \$40,000 Level 2 (25,000 units): (25,000 X \$8) – \$80,000 = \$120,000 Level 3 (40,000 units): (40,000 X \$8) – \$100,000 = \$220,000 Profit is optimal at Level 3. Solutions 6-22
6.36 (The Washington Company; CVP analysis with semifixed costs and changing unit variable costs.) a. First find the unit contribution margin last year:
c. Compute the profits at the maximum volume for each level.
6-23 Solutions
6.36 c. continued. Level 2: Profit = (\$50 – \$30)20,000 units + (\$50 – \$42)16,000 units – \$164,000 = \$364,000. The company is more profitable at Level 2 with 36,000 units. 6.37 (Kids Education Center; CVP analysis with semifixed costs.) a. Operating Profit = [(\$380 – \$80)30 students] – [\$1,200 X 6 teachers] – \$900 = \$9,000 – \$7,200 – \$900 = \$900. b. Operating Profit = (\$380 – \$80) X – \$1,200 Q – \$900 where X = number of students and Q = number of teachers. ( Note : An incorrect but common method is to substitute the ratio X /6 for Q and solve for X . This gives 9 students, but it assumes 1 1/2 teachers are employed.) This part demonstrates the impact of step costs on cost-volume-profit analysis. 0 - 6 students: Operating Profit = \$300 X – (\$1,200 X 1) – \$900 X = = 7