CVP: EXERCISES AND PROBLEMS 1. Gilley, Inc., sells a single product.

The company's most recent income statement is given below. Sales (4,000 units) Less variable expenses Contribution margin Less fixed expenses Net income Required: a. b. Contribution margin per unit is If sales are doubled to $240,000, total variable costs will equal If sales are doubled to $240,000, total fixed costs will equal If 10 more units are sold, profits will increase by Compute how many units must be sold to break even. Compute how many units must be sold to achieve profits of $20,000. $ _______________ per unit $120,000 (68,000) 52,000 (40,000) $ 12,000

$ _______________

c.

$ _______________ $ _______________ # _______________

d. e. f.

# _______________

Answer: a. b. c. d. e. f. Contribution margin per unit is $30 – $17 = $13 $68,000 x 2 = $136,000 $40,000 Contribution margin of $13 x 10 units = $130 Fixed costs of $40,000 / Contribution margin per unit $13 = 3,077 units (Fixed costs of $40,000 + Profits $20,000) / CM per unit $13 = 4,616 units

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000.000.com) . c.40 CM% = $20.000 (50.75 CM ratio. the company expects annual property taxes to decrease by $15.000 in total sales dollars.000 = 40% Fixed costs $50.000 in total sales to break even. Sales Less variable expenses Contribution margin Less fixed expenses Net income Required: a. In 2005. $285.000 in net income.000 fixed costs = $300.000 / $200. $600.000 total fixed costs / 0.000. variable costs of $200.2.000) 80. $300. The breakeven point for 2004 is $400.000 CM / $800.novapdf.000. Grant Company has sales of $800. Contribution margin ratio is Breakeven point in total sales dollars is To achieve $40.000 / 0. net income will increase by __________ % $ _______________ $ _______________ $ _______________ $200. d.000 in sales $50. In 2004. sells a single product.000 in total sales dollars. $300.000 in total sales to break even. and fixed costs of $300. Calculate operating income and the breakeven point for 2004. The company's most recent income statement is given below. 2 Create PDF files without this message by purchasing novaPDF printer (http://www.40 CM% = $125. Contribution margin ratio is $80.000 reduction in property taxes = $285.000 Answer: a.000 x 0. Inc. The breakeven point for 2005 is $380. b.000 sales revenue – $200.000 sales revenue = 0. b. sales must total If sales increase by $50. Answer: a.000) $ 30. b.75 CM ratio = $400.000 fixed costs – $15.40 CM% = $225.000 in sales [Fixed costs $50.000. Required: a. d. In 2004. Blankinship.000 estimated fixed costs for 2005. operating income is $800. c.000 + Net income $40.000.000 variable costs – $300.. Calculate the breakeven point for 2005.000 (120.000 increase in net income 3.000 total fixed costs / 75% CM ratio = $380. b.000] / 0.

75 phones Breakeven is 94 phones c. fixed manufacturing costs decline by 10%.000.000 = 0 N = $18.750 = 0 N = $3. What is the breakeven point in batteries? What is the margin of safety. Fixed manufacturing costs total $1.800 batteries b.750 / $40 = 93. sells car batteries to service stations for an average of $30 each. Margin of safety = $60. c. N = Phones to be sold $100N – $50N – $10N – $1. The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10.000? What is the breakeven level in batteries. d.25 phones 282 phones must be sold 5 Alex Miller. N = Breakeven units $30N – $20N – $10.000/$10 = 1.000 = 0 $10N – $18.000 – ($30 x 1. N = Breakeven in phones $100N – $50N – $10N – $1.250 – $2.250 N = $11. assuming the selling price goes up by 10%. Required: a. b.500 $40N = $11.250 per month.000 – $8. What is the contribution margin per phone? b.. Other monthly fixed costs of the company total $8. while fixed selling and administrative costs total $2. assuming sales total $60.250 / $40 = 281. The unit variable cost per phone is $50 plus a selling commission of 10%. Required: a.800) = $6. How many phones must be sold to earn pretax income of $7. Inc.500? Answer: a.novapdf.000 3 Create PDF files without this message by purchasing novaPDF printer (http://www. CM per phone = $100 – $50 – 0.500 = $7. Berhannan’s Cellular sells phones for $100.500 = 0 $40N – $3. and other fixed costs decline by $100? Answer: a.250 – $2.500.4.1($100) = $40 b.com) . What is the breakeven point in phones? c. assuming variable costs increase by 20%? What is the breakeven level in batteries.000.

N = Breakeven units $33N – $20N – $9.c.000 = 0 N = $18.900/$13 = 1. N = Breakeven units $30N – $24N – $10.000 batteries d.000 – $8.com) .000 = 0 $6N – $18.900 = 0 N = $16.000 – $7.novapdf.300 batteries 4 Create PDF files without this message by purchasing novaPDF printer (http://www.900 = 0 $13N – $16.000/$6 = 3.

assuming 1. Yurus Manufacturing Company produces two products. Answer: a. Furniture.600 = 0 N = $17.600 = 0 N = $9.000.600 – $8. Inc. What is the contribution margin per lamp? b.000? d.200 lamps d..200 lamps c. What is the breakeven point in lamps? c. Calculate breakeven volume in total dollars if the sales mix is 2 units of X for every 3 units of Y. b. The following information is presented for both products: X Y Selling price per unit $36 $24 Variable cost per unit 28 12 Total fixed costs are $234.500) – $36. Calculate the contribution margin for each product.6.600. X: $36 – $28 = $8 Y: $24 – $12 = $12 b.500 units 5 Create PDF files without this message by purchasing novaPDF printer (http://www.000 = 0 $8N – $17.novapdf. sells lamps for $30. Contribution margin per lamp = $30 – $22 = $8 b.600 = 0 $8N – $9.$9. Required: a. (3 x $8) + (1 x $12) = $36 $234. The unit variable cost per lamp is $22.500 lamps are sold? Answer: a. Fixed costs total $9.600/$8 = 1.com) . X and Y. N = Target sales in lamps $30N – $22N – $9.000 = $9. N = Breakeven point in lamps $30N – $22N . c.000/$36 = 6. What is the margin of safety.600/$8 = 2. Margin of safety = Sales – Breakeven sales = ($30. Required: a.000 7. How many lamps must be sold to earn a pretax income of $8.00 x 1. Calculate breakeven point in units of both X and Y if the sales mix is 3 units of X for every unit of Y.

600 6 Create PDF files without this message by purchasing novaPDF printer (http://www.000 38. N = breakeven in boys' shirts 2N = breakeven in men's shirts $24N + $28. b.200 men’s shirts need to be sold.600 shirts Therefore.800 172. to break even.400. 1. assuming the sales mix is 2:1 in favor of men's shirts? b. What is the breakeven point in units for each type of shirt.500 x 1 = 6.400/$24 = 1.80 $20.800 $72.000 $72.500 x 2 = 9.400 = 0 $24N – $38.40(2N) – $38.400 = 0 N = $38.400 Total 9.400 $33. Bob’s Textile Company sells shirts for men and boys.000 x $36 = $324.000 50.80 Fixed costs are $38.000 Y: 4.40 $24.000 Total dollar sales = $648.500 units Y: 6.000 shirts? Answer: a.000/$52 = 4.600 Men's 6.500 x 3 = 19.500 units c.400 = 0 $81.000 $172. and sales total 9. assuming the sales mix is 2:1 in favor of men's shirts.6N – $57. Sales in units Revenue Variable costs Contribution margin Fixed costs Operating income Boys' 3.000 $244. What is the operating income.00 $16.500 x $24 = $324.400 $21.80(2N) – $16.6N – $38.600 boys' shirts and 3.800 122.com) . (2 x $8) + (3 x $12) = $52 $234.novapdf.000 8.400 $50.80N – $20. The average selling price and variable cost for each product are as follows: Men’s Selling Price Variable Cost Boys' Selling Price Variable Cost $28. Required: a.500 x 3 = 13.500 units X: 4.X: 6.

facing a tax rate of 30%? Answer: a. Stephanie’s Stuffed Animals reported the following: Revenues $1. Mount Carmel faces a tax rate of 30%. c. so the tax rate change is irrelevant in this situation. 10. Product A and Product B.9. Mount Carmel Company sells only two products.000 Therefore. What is the breakeven point if Mount Carmel’s tax rate is reduced to 25%. Product A $40 $24 Product B $50 $40 Total Selling price Variable cost per unit Total fixed costs $840.novapdf.000 $42N – $945. 40. What is the breakeven point in units for each product assuming the sales mix is 2 units of Product A for each unit of Product B? b.000 = 0 N = $840.000 / $42 =22.500 units of Product B need to be sold. How many units of each product would be sold if Mount Carmel desired an after-tax net income of $73. 2 x N = 45.500. assuming the sales mix is 2 units of Product A for each unit of Product B? c.000 = 0 N = $945.com) . to meet the profit goal.000 units of Product A and N = 22.500 Therefore. N = breakeven in product B 2N = breakeven in product A ($40 x 2N) + ($50 x N) – ($24 x 2N) – ($40 x N) – $840.000 = 0 $42N – $840. At the breakeven point there is no pre-tax income. The breakeven point would be the same.000 / $42 = 20.000 Variable manufacturing costs $ 200 Variable nonmanufacturing costs $ 230 Fixed manufacturing costs $ 150 7 Create PDF files without this message by purchasing novaPDF printer (http://www.500 / (1 – .000 units of Product B need to be sold.000 = 0 ($130 x N) – ($88 x N) – $840.000 units of Product A and 20.3) ($130 x N) – ($88 x N) – $840. b.000 = $105. Required: a. to break even.000 = $73.000 Mount Carmel sells two units of Product A for each unit it sells of Product B. N = number of units of product B 2N = number of units of product A ($40 x 2N) + ($50 x N) – ($24 x 2N) – ($40 x N) – $840.

$ 140 Answer: a. b. Gross margin $1. Compute gross margin.Fixed nonmanufacturing costs Required: a.000 – $200 – $230 = $570 b. Compute contribution margin. c.000 – $200 – $150 = $650 c. Contribution margin $1.com) . Compute operating income. Operating income $1000 – $200 – $230 – $150 – $140 = $280 8 Create PDF files without this message by purchasing novaPDF printer (http://www.novapdf.

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