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    CVP Exercises

    Uploaded by

    Obamamanam
    This document contains two homework problems involving break-even analysis and contribution margin. The first problem calculates break-even units, contribution margin per unit, variable cost ratio, and more for a company. The second problem does similar calculations for a company that produces foil baking pans, determining break-even units, units required to earn a profit, variable and fixed costs. It also calculates ratios and profits assuming different sales levels and tax rates.

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    CVP Exercises

    Uploaded by

    Obamamanam
    254 views3 pages
    This document contains two homework problems involving break-even analysis and contribution margin. The first problem calculates break-even units, contribution margin per unit, variable cost ratio, and more for a company. The second problem does similar calculations for a company that produces foil baking pans, determining break-even units, units required to earn a profit, variable and fixed costs. It also calculates ratios and profits assuming different sales levels and tax rates.

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    Cvp Exercises

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    This document contains two homework problems involving break-even analysis and contribution margin. The first problem calculates break-even units, contribution margin per unit, variable cost ratio, and more for a company. The second problem does similar calculations for a company that produces foil baking pans, determining break-even units, units required to earn a profit, variable and fixed costs. It also calculates ratios and profits assuming different sales levels and tax rates.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    254 views3 pages

    CVP Exercises

    Uploaded by

    Obamamanam
    This document contains two homework problems involving break-even analysis and contribution margin. The first problem calculates break-even units, contribution margin per unit, variable cost ratio, and more for a company. The second problem does similar calculations for a company that produces foil baking pans, determining break-even units, units required to earn a profit, variable and fixed costs. It also calculates ratios and profits assuming different sales levels and tax rates.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 3

    C-V-P Homework Problems

    1) The controller of Queens Company prepared the following projected income


    statement:

    Sales (5,000 units @ $15) $75,000


    Less: Variable costs 60,000

    Contribution margin $15,000


    Less: Fixed costs 10,350

    Operating income $ 4,650

    Required:

    1. Calculate the breakeven number of units.


    15x – 12x - $10,350 = 0
    x = $3,450

    2. Prepare an income statement at breakeven.


    Sales ($15 x $3,450) = $51,750
    (less) Variable costs ($12 * $3,450) = ($41,400)
    Contribution Margin = $10,350
    (less) Fixed costs = ($10,350)
    Income = $0

    3. How many units must Queens sell to earn operating income equal to
    $9,900?
    X = (FC + Income) / (CM/ U) [we use CM/ U here because we are finding
    units)
    X = ($10,350 + $9,900) / ($3)
    Where CM / U = $15,000 / $5,000 = $3
    $6,750 units

    4. What is the contribution margin per unit? What is the CM ratio?


    CM margin = $15,000 / $5,000 = $3
    CM ratio = $15,000 / $75,000 = 20%

    5. What is the variable cost ratio?


    Variable cost ratio = VC / S or $60,000 / $75,000 = 80%

    6. Calculate the breakeven revenue.


    $3,450 x $15 = $51,750

    7. How much revenue must Queens make to earn operating income of


    $9,900?
    FC + Income / CM / S (we use CM / S here because we are dealing with
    revenue)
    X = $10,350 + $9,900 / ($15,000 / $75,000 or 0.2)
    X = $10,125

    8. How many units must Queens sell to earn operating income equal to 15%
    of revenue?
    0.15 (15x) = 15x – 12x - $10,350
    x = $13,800 units

    2) Pratt Company produces and sells disposable foil baking pans to retailers for
    $2.45 per pan. The variable costs per pan are as follows:

    DM $0.27
    DL 0.58
    Variable overhead 0.63
    Selling 0.17

    Fixed manufacturing costs total $131,650 per year. Administrative costs (all fixed) total
    $18,350.

    Required:

    1.Compute the number of pans that must be sold for Pratt to break even.
    X = FC + 0 / (CM / u)
    X = $150,000 / (0.8) -> $2.45 - $1.65 = $0.80
    $187,500 units

    2.How many pans must be sold for Pratt to earn a before-tax profit of $12,600?
    X = FC + income / (CM / U)
    X = $150,000 + $12,600 / (0.8) = 203,250 units

    3.What is the unit variable cost? What is the unit variable manufacturing cost?
    Which is used in c-v-p (cost volume profit) analysis and why?

    4.Assuming a tax rate of 40%, how many pans must be sold to earn an after-tax
    profit of $25,200?
    x = FC + [ATNI / 1 – T] / (CM / U)
    x = $150,000 + [25,200 / 0.6] / (0.8) = 240,000 pans
    3/ The Queens Company had revenues of $930,000 last year with total variable costs of
    $399,900 and fixed costs of $307,800.

    Required:
    1. What are the CM and VC ratios?
    CM ratio = $930,000 (sales) - $399,900 (VC) = $530,100
    $530,100 / $930,000 = 0.57

    VC = 1 – 0.57 = 0.43
    Or $399,900 / $930,000 = 0.43

    2. What is the breakeven point in sales revenue?


    Break even = x = (FC = 0) / CM/S
    X = (307,800) / 0.57
    X = $540,000

    3. What was the margin of safety last year?


    $930,000 - $540,000 = $390,000
    and margin of safety ratio = $390,000 / $930,000 = 0.42

    4. Queens Co. is considering starting a multimedia advertising campaign that is


    supposed to increase sales by $7,500 per year. The campaign will cost $5,000.
    Is the advertising campaign a good idea? Explain.

    If advertising causes sales to increase by $7,500, volume will have increased and
    not sales p/u.
    This means V/C increases.

    Original I/S
    Sales = $930,000
    VC = ($399,900)
    CM = $530,100
    FC = (307,800)
    Income = $222,300

    Proposed I/S with advertising


    Sales = $937,500
    VC = (937,500 x 0.43) = ($403,125)
    CM = $534,375
    FC = ($312,800)
    Income = $221,575

    Bad idea since income has decreased.

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