Cost Accounting | Assignment 31| Dr.

GK
Marginal Costing and Cost-Volume-Profit (CVP) Analysis
1. Xenoc, Inc. produces stereo speakers. The selling price per pair of speakers is $800.
The variable cost of production is $300 and the fixed cost per month is $50,000.
Required:
a) Calculate the break-even point for a month.
b) How many pairs of speakers must be sold to earn a monthly profit of
$20,000?
2. Xenoc, Inc. produces stereo speakers. The selling price per pair of speakers is $800.
The variable cost of production is $300 and the fixed cost per month is $50,000.
Required:
a) Calculate the contribution margin associated with the pair of speakers.
b) In August, the company sold five more pairs of speakers than planned.
What is the expected affect on profit related to selling of additional
speakers?
3. Xenoc, Inc. produces stereo speakers. The selling price per pair of speakers is $800.
The variable cost of production is $300 and the fixed cost per month is $50,000. For
November, the company expects to sell 120 pair of speakers.
Required:
a) Calculate expected profit.
b) Calculate the margin of safety in dollars.
4. Kramer Groceries has estimated that fixed costs per month are $200,000 and the
variable cost per dollar of sales is $0.80.
Required:
a) What is the break-even point per month in sales?
b) What level of sales is needed for a monthly profit of $60,000?
c) For the month of April, the company anticipates the sale of 1,400,000.
What is the expected level of profit?
5. Code connect is currently selling 3,000 units per month at a price of $200. Variable
costs per unit are $90.83 and total fixed costs are $160,285 per month. Management
is considering a change in the production process that will increase fixed costs by
$50,000 to $210,285, but decrease variable costs to only $80 per unit.
a. How would this change effect monthly profit?
1
Source text book: Managerial Accounting, James Jiambalvo, 2nd Edition
 b. What is the selling price to earn a profit of $200,000 if 3,000 units are sold
and the fixed cost is not changed?
6. National Tennis Racquet Co. produces and sells three models:
Samsher Basher Dinker Total
Units Sold 1,000 2,000 2,000 5,000
Sales $100,000 $120,000 $80,000 $300,000
Less: Variable Costs 50,000 48,000 24,000 122,000
Contribution Margin 50,000 72,000 56,000 178,000
Less: Common Fixed Costs 103,000
Profit $75,000
Required:
a) What is the weighted average contribution margin per unit?
b) Calculate the breakeven point in units assuming the current mix.
c) What would be the number of Smashers, Bashers and Dinkers in the break-
even level of sales?
7. National Tennis Racquet Co. produces and sells three models:
Samsher Basher Dinker Total
Units Sold 1,000 2,000 2,000 5,000
Sales $100,000 $120,000 $80,000 $300,000
Less: Variable Costs 50,000 48,000 24,000 122,000
Contribution Margin 50,000 72,000 56,000 178,000
Less: Common Fixed Costs 103,000
Profit $75,000
Required:
a) What is the weighted average contribution margin ratio?
b) What level of sales (in dollars) would be needed to earn a profit of $100,000
assuming the current mix?
c) What would be the sales (in dollars) of Smashers, Bashers and Dinkers for
total sales calculated in part b?
8. Saldina Hardware is organized into three departments. The following sales and cost
data are available for the prior year:
Department A Department B Department C Total
Sales $265,000 $850,000 $900,000 $2,015,000
Less: Variable 106,000 510,000 720,000 1,336,000
costs
Contribution
Margin
Less: Fixed 60,000 85,000 92,000 237,000
costs
Profit

Required:
 a) What is the weighted average contribution margin ratio?
b) What level of sales is needed to earn a profit of $500,000 assuming the current
mix?
c) Saldina Hardware places an advertisement in the local paper each week. All
else equal, which department would you emphasize in the advertisement?
9. JGBS, Inc. and JGLS, Inc. are the two companies in the pharmaceutical industry.
JGBS has relatively high fixed costs related to research and development. JGLS, on
other hand, does little research and development. Instead, the company pays for the
right to produce and makes drugs that have been made by other companies. The
amount paid is percent of sales. Thus, JGLS has relatively high variable costs and
relatively low fixed costs.

JGBS, Inc. JGLS, Inc.

Required:
a) Which company has the highest operating leverage?
b) Calculate the expected percentage change in profit for a 10 percent increase (
and for a 10 percent decrease) in sales for each company.
c) Which company is more risky?
10. GK products produces two products:

Product A Product
B
Selling Price $80 $70
Less: Variable Costs 20 40
Contribution Margin $60 $30

Product A requires 5 labor hours and B requires 2 labor hours. The company has only
320 available labor hours per week.
a. Which product the company should produce?
b. What would be the incremental benefit of obtaining 10 additional hours?
11. GK Hifi sells audio and video equipment and car studio products. After performing a
study of fixed and variable costs in the prior year, the company prepared a product
line profit statement as follows:
GK Hifi
Profitability Analysis
For the year ended 12/31/06
Audio Video Car Total
Sales $3,000,000 $1,800,000 $1,200,000 $6,000,000
Less: Variable
Costs
Cost of 1,800,000 1,260,000 600,000 3,660,000
merchandise
Salary part-time 120,000 80,000 30,000 230,000
staff
Total variable 1,920,000 1,340,000 630,000 3,890,000
costs
Contribution 1,080,000 460,000 570,000 2,110,000
margin
Less direct Fixed
Costs:
Salary, full time 300,000 250,000 210,000 760,000
staff
Less common
fixed costs
Advertising 110,000
Utilities 20,000
Other 560,000
administrative
costs
Total common 690,000
fixed costs
Profit 660,000

Required:
a. Calculate the contribution margin ratios for audio, video and car product lines.
b. What would be the effect on profit of a $1000,000 increase in sales of audio
equipment compared with a $1000,000 increase in sales of video equipment,
or a $1000,000 increase in sales of car equipment? Based on this limited
information, which product line would you recommend expanding?
c. Calculate the break-even level of sales for the company as whole?
d. Calculate the sales needed to achieve a profit of $1,500,000 assuming the
current mix.
e. Determine the sales of audio, video and car products in the total sales amount
calculated for part d.
12. GK services offers computer consulting, training and repair services. For the most
recent fiscal year, profit was $230,000 as follows:
Consulting Training Repair Total
Sales $500,000 $400,000 $300,000 $1,200,000
Less variable
costs
 Salaries 250,000 160,000 180,000 590,000
Supplies/ parts 20,000 30,000 60,000 110,000
Other 1,000 2,000 4,000 7,000
Contribution 229,000 208,000 56,000 493,000
Margin
Less common
fixed costs
Rent 40,000
Advertising 200,000
Utilities 15,000
Other 8,000
Profit $230,000

Required:
a. Dr. GK the owner of GK services, believes that in the coming year he can
increase sales by 20 percent. Assuming the current mix of services, what will
be the percent increase in profit associated with a 20 percent increase in sales?
Why will profit increase at a greater percent than sales?
b. If Dr. GK were to focus on the contribution margin per unit (rather than the
contribution margin ratio), what would be the likely unit of service?

13. Premier Custom Computers is a small company that assembles PC’s to customer
specifications. The company buys all of its component parts from
TechWarehouse.com. In the past the year, the company had the following before tax
profit:
Sales $1,250,000
Less:
Cost of components $875,000
Staff salaries 180,000
Rent 24,000
Utilities 3,600
Advertising 2000 1,084,600
Operating profit before 165,400
bonuses
Staff bonuses 66,160
Profit before taxes and $99,240
owner “draw”

The company owned by Patrica Wells, has six full time employees. These employees
are each paid a base salary of $30,000 per year. In addition they receive a bonus equal
to 40% of operating profits before bonuses.The cost of components is 70% of sales.
Owner “draw” is the amount Patrica pays herself out of company profits.
 The company is in process of planning profits for the coming year.
TechWarehouse.com has agreed that the prices to Premier will be reduced by 20
percent on all purchases over $900,000.
Required:
Estimate profit before taxes and owner “draw” for five level of sales: $1,000,000;
$1,100,000; $1,200,000; $1,300,000; $1,400,000.
14. GK company sells its product at 15$ per unit. In a period if it produces and sells
8,000 units, it incurs a loss of $5 per unit. If the volume is raised to 20,000 units, it
earns a profit of $4 per unit. Calculate breakeven point both in terms of dollars as
well as in units.
15. The product mix of JGU ltd. is as under:
Products
JIBF JGLS
Units 54,000 18,000
Selling Price $7.50 $15.00
Variable Cost $6.00 $4.50
Find the breakeven point in units, if the company discontinues JIBF and replace with
product JGBS. The quantity of JGBS is 9,000 units and its selling price and variable
costs respectively are $18 and $9. Fixed costs is $15,000.

16. You are given the following data for the coming year in factory:
Budgeted Output 8,00,000 units
Fixed Expenses 40,000
Variable Expenses per unit $100
Selling price per unit $200
a. Draw the break even chart showing the break even point.
b. If price is reduced to $180, what will be the new break even point?

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