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statement:

Less: Variable costs 60,000

Less: Fixed costs 10,350

Required:

15x – 12x - $10,350 = 0

x = $3,450

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

CM margin = $15,000 / $5,000 = $3

CM ratio = $15,000 / $75,000 = 20%

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

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

$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

Break even = x = (FC = 0) / CM/S

X = (307,800) / 0.57

X = $540,000

$930,000 - $540,000 = $390,000

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

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

Sales = $937,500

VC = (937,500 x 0.43) = ($403,125)

CM = $534,375

FC = ($312,800)

Income = $221,575

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