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# AIM 2302

CVP PROBLEMS
1. CVP computations. Fill in the blanks for each of the following independent cases
Variable
Case Revenues Costs
a.
\$______
\$500
b.
2,000
______
c.
1,000
700
d.
1,500
______

Fixed
Costs
\$_______
300
______
300

Total
Costs
\$ 800
________
1,000
_______

Operating
Income
\$1,200
200
_______
_______

Contribution
Margin
Percentage
_______
_________
_________
40%

2. CVP computations. Patel Manufacturing sold 180,000 units of its product for \$25 per
unit in 2003. Variable cost per unit is \$20 and total fixed costs are \$800,000.
Required:
a.) Calculate contribution margin and operating income.
b.) Patel’s current manufacturing process is labor intensive. Patel’s production
manager has proposed investing in a new machine, which will increase total fixed
costs to \$2,500,000 and decrease variable costs to \$10 per unit. Patel expects to
maintain the same sales volume and selling price next year. If they purchase the
machine, what will contribution margin and operating income be?
c.) Should Patel invest in the new machine? Explain.
3. CVP analysis, changing revenues and costs. Sunshine Travel Agency specializes in
flights between Toronto and Jamaica. It books passengers on Canadian Air. Sunshine’s
fixed costs are \$22,000 per month. Canadian Air charges passengers \$1,000 per roundtrip ticket.
Required:
Calculate the number of tickets Sunshine must sell each month to (1) break even and (2)
make a target operating income of \$10,000 per month in each of the following
independent cases:
a. Sunshine’s variable costs are \$35 per tickets. Canadian Air pays Sunshine 8%
commission on ticket price.
b. Sunshine’s variable costs are \$29 per ticket. Canadian Air pays Sunshine 8%
commission on ticket price.
c. Sunshine’s variable costs are \$29 per ticket. Canadian Air pays \$48 fixed
commission per ticket to Sunshine.
d. Sunshine’s variable costs are \$29 per ticket. It receives \$48 commission per
ticket from Canadian Air. It charges its customers a delivery fee of \$5 per ticket.

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holding revenues constant A 10% decrease in contribution margin.50 per unit. (Consider each case independently) a. h.000 Variable costs change with respect to the number of doughnuts sold. What is the present breakeven point in revenues? Compute the new operating income for each of the following changes: 2. Compute the budgeted operating income for each of the following deviations from the original budget data. The Super Donut owns and operates six doughnut outlets in and around Kansas City. f. a 10% decrease in variable cost per units. g. Variable costs are \$0. Fixed costs are \$900. You are given the following corporate budget data for next year. CVP exercises. A 10% increase in selling price and a \$20. A \$0.4. A 10% increase in fixed costs and a 10% increase in units sold 4.000. What is the present operating income for a year? 1b. Consider each case separately: 1a. A 10% increase in contribution margin. and a 40% increase in units sold. a 20% decrease in selling price. holding revenues constant A 5% increase in fixed costs A 5% decrease in fixed costs An 8% increase in units sold An 8% decrease in units sold A 10% increase in fixed costs and a 10% increase in units sold A 5% increase in fixed costs and a 5% decrease in variable costs 5. The Doral Company manufactures and sells pens. 5.700. c. e. b.000 increase in fixed costs 2 . Compute the new breakeven point in units for each of the following changes: 5. d. A 20% decrease in fixed costs.000 per year. CVP exercises.200.000 1.30 per unit.000 units are sold per year at \$0. Revenues Fixed costs Variable costs \$10.000.000 8. A 10% increase in fixed costs 6.04 per unit increase in variable costs 3. Currently.

assume a budget reduction of 22% and the same fixed costs. Each athletic scholarship is for \$20. calculate the amount that will be paid to each student who receives a scholarship.000 per person on its five-day package tours to wildlife parks in Kenya. Determine the number of athletic scholarships Midwest University can offer each year. Athletic scholarships.000 c. b. and variable operating costs are \$2. Fixed costs are to remain the same.000 for athletic scholarships. Calculate the revenue needed to earn a target operating income of \$100.500 500 \$5. Calculate the number of package tours that must be sold to break even. Calculate the number of athletic scholarships that Midwest can offer next year.600 Annual fixed costs total \$480.000.500 Hotel accommodations 1. b. If Midwest wanted to offer the same number of athletic scholarships as it did in requirement 1. Teddy Bear Daycare provides daycare for children Mondays through Fridays. CVP analysis.000. The variable costs per person are: Airfare \$1. 7. target income.000 300 300 2.000 per scholarship offered. service firm. what decrease in variable costs must be achieved to maintain the breakeven point calculated in requirement 1? 8. Monthly variable costs per child: Lunch and snacks Educational supplies Other supplies Total Monthly fixed costs are comprised of: Rent Utilities Insurance Salaries Miscellaneous Total \$100 75 25 \$200 \$2.000. a.000 per year. Wildlife Escapes generates average revenue of \$4. As in requirement 2. If fixed costs increase by \$24. a. Suppose the total budget for next year is reduced by 22%. c. Fixed operating costs of the athletic scholarship program are \$600.600 3 . Midwest University has an annual budget of \$5.6. CVP.000.000 Meals 300 Ground transportation 600 Park tickets and other costs 200 Total \$3. CVP analysis. service firm.

What will happen to a company’s break-even point if the sales price and unit variable cost of its only product increase by the same dollar amount? 4 . Monthly rent for the new building is \$4. measured in number of clients served? Why? 12.000. 10. Calculate the sales revenue Galaxy must generate in 2004 to maintain the current year’s operating income if the selling price remains unchanged. What will happen to its break-even point.000 per month. Calculate Galaxy’s breakeven point in units b. Variable costs consist of the \$10 purchase price and a \$2 shipping and handling cost.300 patient days per month.400 per months.000 units.? 9. How much should Teddy Bear increase fees per child to meet the target operating income of \$10. Teddy Bear lost its lease and had to move to another building. CVP analysis. For 2004. Teddy Bear’s target operating income is \$10.70 per patient day. Compute the number of children that must be enrolled to achieve the target operating income. c. Mariposa Medical Institute operates a 100-bed hospital and offers a number of specialized medical services. The hospital charges \$100 per patient day. based on a sales volume of 200.000. Galaxy Disk’s projected operating income for 2003 is \$200. Based on past cost data. Galaxy’s annual fixed costs are \$600. b. Calculate the breakeven point.Teddy Bear charges each parent \$600 per child. Capacity-related costs are \$91. a. Mariposa has estimated its flexible costs at \$45. Suppose the fixed expenses of a travel agency increase.400 per month. assuming the same number of children as in Requirement b. How will this affect the firm’s break-even sales volume? 13. The hospital’s administrator has estimated that the hospital will average 2. Breakeven analysis for a hospital. c. Chesapeake Oyster Company has been able to decrease its variable expenses per pound of oysters harvested. management expects that the unit purchase price of the disks will increase by 30%. a. Galaxy sells disks for \$16 each.000. Calculate the company’s operating income in 2003 if there is a 10% increase in projected unit sales. How much will the hospital need to charge per patient day to break even at this level of activity? 11.