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