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# C-V-P Homework Problems

statement:

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

Less: Variable costs 60,000

## Contribution margin \$15,000

Less: Fixed costs 10,350

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
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